Q4 2021 Meridianlink Inc Earnings Call
Ladies and gentlemen, cheaper standby and welcome to American linked fourth quarter and fiscal year 2021 earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded.
To turn the conference over to your first speaker today ex Snyder head of Investor Relations. Please go ahead.
Good afternoon, and welcome to Meridian links fourth quarter and fiscal year 2021 earnings call, we will be discussing the results announced in our press release issued after the market closed today.
With me from Iridium, <unk>, Chief Executive Officer, Nicholas Block and Chief Financial Officer, Chad Martin.
Before we begin I'd like to remind you that today's conference call will include forward looking statements based on the company's current expectations.
These forward looking statements are subject to a number of significant risks and uncertainties.
And our actual results may differ materially.
For a discussion of factors that could affect our future financial results and business. Please.
Please refer to the disclosure in today's earnings release and the <unk>.
Other reports and filings we file from time to time with the Securities and Exchange Commission.
All our statements are made based on information available to us as of today.
And.
As required by law, we assume no obligation to update any such statements.
During the call. We will also refer to both GAAP and non-GAAP financial measures.
You can find a reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted to the Investor Relations section of our website.
With that let me turn the call over to Nicholas.
Thank you Eric and good afternoon, everyone. Thank.
Thank you all for joining us for our fourth quarter and fiscal year 2021 earnings call.
2021 was a very successful year with strong growth in Q4 continued to show strong momentum outside the expected slowing in mortgage related revenues.
As a result meridian link exceeded guidance again in Q4 with GAAP revenue up 19% year over year to $64 million and 38% adjusted EBITDA margins.
In a few minutes chat will provide additional details on these results and provide 2022 guidance, but first I will provide some details on what we are seeing in the macro backdrop and on key areas of strength during the quarter.
We continue to see notable strength in the consumer lending side of our business with strong momentum in the fourth quarter up 23% year over year.
This strength has been driven.
Impart by the reinvestment of our mortgage related upside into the rest of our lending business.
In line with our guidance the impact of mortgage on both our lending software and data verification software revenue types declined in the fourth quarter.
Mortgage came in at approximately 27% of revenues during the quarter and we expect this percentage to decline further in 2022 due to both the expected weakening of mortgage volumes and two the continued outperformance of our consumer lending solutions.
As you know, but I really want is a comprehensive consolidated all in one cloud platform that supports all consumer loan and account types, including mortgage.
We believe Meridian link is outperforming in our market due to our diversified portfolio of products offered in our integrated platform and the continuing strong digitalization that wins.
Moving on to key areas of strength there are three things I would like to talk about.
One our increasingly robust go to market engine and how that is driving continued momentum in both new logo wins and cross sell.
Two innovation, including products suite integration modernization and expansion and how this is driving ones.
And thirdly.
Reduced implementation times and how these are driving faster go lives and helping us to invoice to them.
So let's talk about these three in more detail.
Q4 was a record bookings quarter for us with new logo wins the highest ever.
Driven by continued investment in our go to market engine.
We now have nearly 50 quota carrying reps in the field and digitalization is top of mind for customers and prospects.
Our return on this investment has been tremendous generating high demand from potential clients.
We will continue to invest both in strengthening our position now sweet spot and extending beyond it unlocking new market opportunities.
One large Q4 opportunity wasn't one from a fast growing.
Digital mortgage platform designed exclusively for small to mid sized mortgage lenders with more than $150 billion funded and working with more than 300 lasers.
The invasive more than $1 million in Meridian link mortgage and get one and.
And we are confident enhanced messaging of Meridian Lynx open API technology, multi tenant architecture and collaborative approach to growing clients businesses will continue to drive larger lands.
Conversely, but they didn't like atria has enabled ones of institutions smaller than our typical customer.
Through a wholly template implementation.
These are smaller dollar contracts than our typical customer, but it further extends our market leading capabilities for institutions of all sizes, we're committed to providing the base capabilities in the market.
In addition, cross selling is accelerating.
In Q4, and $500 million plus National created Union added Meridian link opening do they portfolio of Meridian linked products, which now includes some of it even in consumer but at Enlink portal and Meridian link consulting.
Secondly.
Our commitment to delivering innovation that is meaningful to our customers is also driving momentum.
When new logos or current clients or like Meridian link.
They repeatedly say like trust about any link to help grow the business because about market leadership and innovation.
We continuously improve solutions for all clients.
Most recently with C&I clients, we combined the leading independent great background and tenant screening platforms.
In lending, we brought together, leading independent products for credit unions and community banks across cause you a point of sale account opening deposit taking direct lending and indirect lending.
We also launched marine Enlink engage in beta in Q4.
And expand it to general availability in January .
Engage is a unique and comprehensive end to end consumer lending account and card marketing automation solution.
We are seeing good initial engagement from prospects at the top of our sales funnel.
Our engineering team also migrated Meridian link portal for consumer lending from our hosting and vitamin D to the public cloud in Q4.
This is our largest migration to date and it allows us to offer increased scalability and highest speed to clients, while improving our ability to iterate and improve the underlying product technology.
In 2022.
We will complete the meridian Lee one platform rollout, providing the full breadth of our leading solution in the public cloud with a unified user experience.
Thirdly.
Organic and inorganic investments in both solutions and go to market activities have meaningfully increased our booking site and on the last call I told you apply and demand for our capabilities.
Our ability to implement them.
COVID-19 increased customer demand for integrated comprehensive digital processes, but slowed implementation some portions of the go live process.
Need to be performed synchronously to accomplish these based outcomes.
As mentioned previously we have developed and launched standardized product and service packages that brings smaller clients live more quickly and using uptick due to less effort from a professional services team.
We also invasive and process improvements that accelerate the portion of the implementation timeline we control.
This helped us close the year with an accelerating number of go lives across core products.
We expect the investments completed then under the warehouse services team to reduce total time from signing to go live by about 30%.
These investments are necessary to work down our backlog and keep up with the ongoing growth in bookings, we expect a very strong return on the Spain, bringing clients online faster as a meaningful financial impact.
Before I turn the call over to Chad I want to give you some high level thoughts on 2022, when we think about 2022, we are more confident than ever now go to market and innovation engines.
We are penetrating more of our time as we continue to opportunistically outside our sales sweet spot.
Cross sell muscle is building and we are increasingly monetizing our partner marketplace.
But I didn't link will also remain a disciplined company in 2022.
We've been able to deliver consistent double digit topline growth.
With profitability levels, well above those of our public something P. S.
None of this is new.
This is what you have come to expect automotive to Enlink.
The Big story for 2022, we'll be bringing customers online more quickly.
I mentioned the investment we are making and will continue to make in our go to market organization.
This is what we have guided for but candidly we have been more successful than we anticipated in generating demand and have proven that adding to our go to market organization produces very high returns.
We will continue to ramp up our sales and marketing team to leverage our already strong position and create further distance between us and the competition.
As a result, we are increasing investments to accelerate implementation capacity.
As we increase hiring we expect short term margin pressure.
But this is basically will allow us to bring recurring revenue online more quickly and improve the go live experience for our customers.
As we close out the last quarter of our first year as a public company I'm pleased to see our strong execution on key growth initiatives and I'm confident the success will continue.
As always.
I'd like to thank our employees.
It is their dedication to and collaboration with our customers that drives that momentum.
We also want to thank our new and existing customers for their trust in us to drive outcomes for their clients and communities.
I will now turn the call over to Chad to talk about our financial results.
Thanks, Nicholas and thanks, again to everyone for joining us today.
This is our first year end earnings call I'll start by providing the highlights for the quarter of the year.
Then I will recap the highlights of our financial model and provide our results in more detail before finally, giving guidance for the first quarter and full year 2022.
As Nicolas mentioned in the fourth quarter, we generated total revenue of $64 million up 19% year over year.
87% of our fourth quarter revenues were subscription fees with the balance coming from professional services and other.
Our operating income was $7 8 million, but our non-GAAP operating income was $11 7 million and adjusted EBITDA was $24 6 million.
For the full year 2021, operating income was $37 7 million.
non-GAAP operating income was $70 8 million and adjusted EBITDA was $123 4 million for the year.
Our IPO was completed during the third quarter. So the fourth quarter of 2021 gives an indication of what we believe that the likely level of ongoing stock based compensation and public company reporting costs.
We have a usage based SaaS recurring revenue model.
Customer signing long term contracts, usually three years that are noncancelable without penalty and which auto renew at the end of term.
Typically customers commit to annual fees and monthly purchases of applications and.
In exchange for higher monthly commitment they receive lower per application pricing.
And any transaction over the monthly minimum commitment is an incremental charge.
Our platform's ability to make our customers more efficient and effective at lending naturally drives more volume once it is installed and used we can grow with our customers and we are aligned with their success.
We provide both lending software solutions and data verification software solutions.
In the fourth quarter lending software solutions revenues accounted for nearly 68% of our total revenue and grew 18% year over year.
The remainder of our revenues come from data verification software solutions, which increased 20% year over year.
For the full year 2021 lending software solutions revenues accounted for nearly 66% of our total revenue and grew 32% year over year.
The remainder of our revenues come from data verification software solutions, which increased 39% year over year.
Fourth quarter revenues from the mortgage loan market generated 27% of our overall revenues.
Specifically, 9% of our lending software solutions revenues and 68% of our data verification software solution revenues were tied to our mortgage focused products.
For the full year 2021 revenues from the mortgage loan market generated 30% of our overall revenues to pose a 9% of lending software solutions and 70% of data verification software solutions.
Of our 19 points of year over year revenue growth in the fourth quarter 13 points were contributed by the acquisitions of <unk> and task works, while the remaining growth came primarily through the addition of new customers increased module penetration of existing customers and increased volume from our customers.
As a reminder, <unk> was acquired during the fourth quarter of 2020. So the growth contribution this quarter is less than in previous quarters of 2021 as PCI revenue was partially into 2020 comparable base.
As expected organic growth from data verification software solutions trended lower year over year, but growth from lending software solutions, excluding GCI remained robust growing double digits versus the prior year period.
Gross margin in Q4 was 65%, but adjusted for stock based compensation it was 72%.
We continue to invest in our sales and marketing and R&D efforts to drive organic growth acceleration.
We are investing significantly to build robust sales and marketing capabilities.
Compared to the fourth quarter last year, we spent 53% more in sales and marketing and 48% more in R&D adjusted for stock based compensation.
With this additional spend our adjusted EBITDA margin was 38% and our adjusted EBITDA decreased by approximately $3 7 million to $24 6 million.
For the full year, 2021 sales and marketing and R&D spend grew by a total of 76 and 57% respectively again adjusted for stock based compensation.
2021, EBITDA grew by $18 8 million to $123 4 million or 18% and EBITDA margin was 46%.
We will continue to invest to accelerate our underlying growth in 2022.
Turning to the balance sheet and cash flow statement, we ended the fourth quarter with $113 6 million in unrestricted cash and cash equivalents up $20 6 million from the end of the third quarter.
In the fourth quarter, we completed the refinancing of our credit facility.
We were able to extend the duration of our term loan and increase the size of our revolving credit facility, while reducing the initial floating interest rate by 50 basis points.
Operating cash flow in the fourth quarter was $20 8 million and free cash flow was $19 4 million in the fourth quarter or a 30% free cash flow margin.
For the full year 2021, operating cash flow was $89 8 million and free cash flow was $84 1 billion or a 31% free cash flow margin. We continue to generate funds that can be used to invest in the business.
Do acquisitions or deleverage.
I will now conclude the call by providing guidance for Q1 and for the full year of 2022.
Overall, we continue to see strong business momentum and our pipeline remains robust for.
For the first quarter estimated total revenue is expected to be between $68 3 million and $69 3 million compared to $67 8 million for the same period. In 2021. This represents an estimated increase of 1% to 2% year over year.
In the first quarter of 2021, the mortgage market contributed $22 7 million of revenue to Meridian link or just over one third of our revenue in the year ago quarter, we expect the mortgage market to contribute only 24% of revenue for the first quarter of 2022.
On a non-GAAP basis, our first quarter estimated adjusted EBITDA is expected to be between $26 5 million and 27 5 million, representing EBITDA margins of approximately 39% at the midpoint of the range.
For the full year 2022 estimated total revenue is expected to be between $288 million and $292 million compared to $267 7 million for the same period. In 2021. This represents an estimated increase of 8% to 9% year over year.
On a non-GAAP basis, our full year 2021 estimated adjusted EBITDA is expected to be between $112 million and $116 million, representing EBITDA margins of approximately 39% at the midpoint of the range.
This lower year over year margin reflects the anticipated increases in annual spending.
Described earlier by Nicholas totaling approximately $15 million as we've communicated previously we will continue to invest in areas to drive future growth and the investment in sales and marketing to drive bookings.
<unk> and services capacity to convert bookings to revenue and the investment in development and the cloud to both enhance and expand our product suite are all items that will require a current expense that we expect will lead to future returns.
Entering 2022, <unk> and Paas works have been part of our company for at least a year.
So we will no longer be calling them out separately from our base.
The normalization of activity in the mortgage lending market appears to be well underway.
We expect this to be a minor headwind in lending software in a more meaningful drag on data verification software performance in the quarters ahead.
Overall, the mortgage related percentage of our revenue in 2022 is expected to decrease to the mid 'twenty down from 30% in 2021.
This reduction is less than previously anticipated as we have continued to add new mortgage clients.
Our existing clients have shown an ongoing ability to win market share and the tougher overall volume environment. We are currently experiencing and we are finding ways to augment our solutions with additional data items and partners to provide more value to our customers and therefore more revenue for ourselves with.
That.
Nicholas and I are happy to take any of your questions operator.
Sure, Sir ladies and gentlemen, if you have a question at this time. Please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue press. It turnkey. Your first question comes from the line of Koji Ikeda with Bank of America. Please go ahead.
Hey, guys. Thanks for taking my question just a couple from me here first the first one on engage.
Congrats on getting that generally available earlier this year, just wondering what the release of engage with without causing any sort of sales cycle pause maybe from the end market is trying to digest a fully digest what this new product is and maybe any sort of color on what this engaged product could be replacing.
Is it a greenfield opportunity and any kind of uplift.
New product could be for existing customers.
Good afternoon, Koji and thank you for your question.
First of all we we've been communicating to the market that we would be launching in Q1 and we've seen.
A good success.
In the beta program in Q4, so we decided to bring to market.
And launch in January since then we've seen great activity at top of funnel.
<unk> exceeded our expectations.
And the.
The sales cycle will continue to rollout, but it will turn into a booking which we'll then move over to our operations group and be implemented in time and turn into revenue.
From a.
Opportunity standpoint, it's automation and analytics.
It is due in large extend the greenfield opportunity in our <unk>.
Customer base they are.
Some solutions available debt.
<unk> has.
<unk> has been available through our partner marketplace.
But.
It's not nearly as integrated.
And as real time as the engage offering that we've launched and we're very excited about it we've received great feedback to date from clients has been facing it and add a lot of sales activity.
Since its launch in January .
Got it thanks, Nick and then just one follow up for me here.
Okay. So you ended the year with 50 quota bearing reps. Thanks for that visibility there and then it sounds like you guys are investing.
For growth so just thinking about the QBR, specifically, how should we be thinking about the pace of new capacity from here and how is the hiring environment been for you.
Let's start with the second part of the question hiring environment is pretty much as challenging as you can imagine and im sure youre hitting it from other companies too.
It's more challenging findings.
Good skill.
Today than it's been in my time with Meridian link for more than three years.
We do however.
Keep finding talent and when we bring talent onboard in based on the on boarding and making.
Our new employee portal the family.
And.
Train them as quickly as we can to be productive as.
New members to the team.
In terms of ramping.
The investments the way I would be thinking about the investments.
We are sitting on.
A significant backlog given the five six quarters of outperformance in bookings and success.
And the investments, we're making in our services group is our highest priority investment in scaling it.
It's business that is contracted it's in the bank. It's basically checks we need to go cash and to me. It's one of the low risk investments you can make in today's market and climate and accelerate the business and and we are confident that it would yield a great ROI.
Also on the sales side.
So this is being the largest part of the investment but on the sales side, we continue to invest but it's probably not going to be at the same clip you've seen.
Over the last 12 to 18 months.
But we.
We find great opportunity, we continue to put more product into the field.
Some of those.
Laser products.
Like our collect product analytics products. For example are getting more air time and getting more focus and then also from an engaged standpoint lots of activity. So from my perspective.
Yeah.
The focus is on services, but there is definitely a ramp.
On the on the sales side to kind of bring it to bring the two together and.
By the end of 2022 has that pretty much in sync.
We're selling and the implementation is yielding a growing backlog anymore.
Got it got it thanks, Nick I appreciate the commentary thank you.
Oh, you're welcome and thanks for asking.
Your next question comes from the line of kidney <unk> with credit Suisse. Please go ahead.
Great. Thanks, a lot for taking the question I have one just around general business and industry trends and another just a quick follow up on the guidance and the incorporation of street shares. The first one is I know we've talked in the past about sometimes during an RFP process Youll actually joined forces with some of the large <unk>.
Our core banking platforms Fiserv FIS Jack Henry is of the World just wondering if <unk> seen any kind of change in that trend if youre still seeing rfps, where you go together in joint to win business together and if you could just touch on that topic generally as a quick follow up is just around the guide if you could just give any of the contribution that might be embedded.
From the Street shares acquisition.
Sounds good I'll be I'll respond to the go to market. Obviously question and then I'll, let Chad speak to the guidance question here.
We still go to market.
We are Switzerland to the goals, we believe Thats our base positioning in the market and we happy to work with cotton integrate into growth and additional cost we can.
We continue to.
To work deals alongside course in all the names you could listed.
In fact, some of our larger opportunities are very tightly integrated sales initiatives, where we end quarter partner and keep moving the deals for wouldn't keep pushing.
The outcome together so from my perspective, no change in that environment to date.
Chad you want to speak to these three chairs.
Sure.
Tim Thanks for the question. So our guidance today doesn't include any impact of Street shares does that deal was just announced it has not yet closed.
And when it does close and the timing of the close is known will then be able to put it into the guidance and we will provide on our next call presuming, we close by that time.
Street shares will will be added to the view for the year.
Would say that.
The acquisition itself is not material to the overall financial.
Picture, So I wouldn't expect to see a material change in the financial guidance when we give it but we certainly will incorporated into the to the next update.
Oh, that's excellent. Thank you for both of those answers really appreciate it thanks a lot.
Thank you for the question is definitely yes.
Yes.
Thank you. Your next question comes from the line of second Kelly with Barclays. Please go ahead.
Okay, Great Hey, guys. Thanks for taking my questions here.
Nicholas maybe maybe just to start with you.
Zooming out a little bit I was wondering if you could just talk a little bit about what your customers are saying about their consumer lending businesses right now.
It's sort of the.
The rising interest rates.
Consumer loans are are going to be less rate sensitive than mortgages for example, but I'm just kind of curious just.
Broadly how your customers sound about those businesses currently does.
That makes sense.
It makes sense.
Afternoon.
Second and thank you for the question.
Yeah.
I agree with you.
In terms of your perspective that consumer lending will be less rate sensitive.
And mortgage will be more rate sensitive and.
My perspective, given most of our clients our deposit taking institutions.
They would welcome a more normalization of rates.
And I actually believe and think they could be upside for our customers.
As non depository competition will be facing rising cost of capital in.
And.
In a rising interest rate environment. So.
Very much agree with.
The analysis that you've <unk>.
Late out and I believe.
It will be a.
Benefit overtime for the largest part of our customer base.
Got it got it that's helpful that makes sense.
Chad maybe for the follow up for you.
I was wondering if you can just touch a little bit on gross margins.
A bit and kind of how youre thinking about those going forward and maybe part of this is.
Just relating back to Nicholas this point just on an incremental services.
Investment, which presumably will be going into the cost of goods sold line, but I was just wondering if you could touch on that a little bit what does that started here in the fourth quarter and maybe just zooming out on gross margins as we start to see that mix shift next year and going forward between lending and data verification can you just touch on whether there is a material.
Gross margin difference.
Between those two.
Sure. Thanks.
I appreciate the question.
Touching on gross margins generally we did see gross margins being slightly lower than our kind of long term model in the fourth quarter and expecting that to continue into 'twenty, two and as you mentioned a big component of that is that we will be augmenting our services.
Capacity.
That capacity in those costs do flow through Cogs as it relates to the services revenue. So we will see some some bump in cost therefore reduction in margin driven by the services and other will be services revenue attached to those investments as well, but the services revenue has a lower gross margin than the SaaS.
<unk> revenue does.
Zooming out like you said, we're looking at the mix shift.
SaaS margin gross margin on data verification is lower than the SaaS margin on lending because we have the cost of the data elements of the data verification.
Contained within within the SaaS side.
Conversely, Theres less services.
Our data verification business than on our lending side. So there is not a real material difference ultimately on the gross margin between those two when you look at the overall mix of business.
And maybe if I could just sneak in one one housekeeping question understanding that street shares Hasnt closed yet is there anything that you can give us in terms of scale.
That's revenue whether that's number of employees anything anything that you can provide understanding that still hasn't closed yet.
Chad anything you want to add to that.
So we'll be giving that guidance.
It's closed circuit, so I would point you to there obviously street tiers as a webpage the.
It talks about the business.
But you can glean information about but we're not looking to provide really any details until we get to close.
Got it fair enough thanks, guys.
Thank you for the question second.
I appreciate it.
Your next question comes from the line of Matt Van Vliet said <unk>. Please go ahead.
Yeah, good afternoon, and thanks for taking the question guys maybe.
A bit of a maybe higher level question around sales activity as a follow up to <unk> question.
As the majority of your customers or depository institutions.
Even if rates are rising quite as quickly as maybe it looked like a few months ago I think the the overall trend certainly points to longer term rates rising so.
That is a backdrop are you seeing some of your customers or potential net new customers.
Embracing the idea of investing in technology, especially in a bigger project undertaking like like in our lending system here.
What's what's their overall appetite for spending.
Balanced with ongoing uncertainty, whether it's from macro or even on the geopolitical side more recently.
And good afternoon, Matt and thank you for your question.
We.
We still find.
Our sales in the.
And a very opportunity rich environment.
Hard to gaze into a crystal ball to see what the ultimate impact of.
The constantly.
We will be but from our perspective and our mid sized clients.
They in the cycle, where basically.
The real need for technology refresh and it's driven at kind of what's coming from a digitalization kind of cycle perspective for them too but.
The pandemic that we've dealt with to date.
Those clients.
Realizing that.
Seamless expectations have shifted away from.
Being in branch transactional.
Too much more digital.
From an interface and communications standpoint.
We have branches all becoming more.
In advisory base.
Knowledge base visit and not purely transactional visits so from from a business model.
Standpoint, it's evolving and we helped the met market stay competitive to larger.
Tier one banks and larger FIS.
And our positioning to date is we had a platform.
We consolidate a number of.
Single point systems into a platform, where decisioning as real time with analytics as real time on automation as to your benefit.
And.
<unk> analysis of how the Odeon and customers are doing compared to non <unk> customers our customers.
Typically outperform non meridian, the encompass customers and loan growth. So Mike will speak to this as long as the lean vitamin done significantly weaken or worsen we will continue to have.
A productive.
<unk>.
Selling.
Motion in the company and we've seen that over the last five quarters.
And.
We sitting on a backlog that we are scaling towards delivering contracts are signed and we've come off of our best quarter in terms of new bookings. So from my standpoint, nothing has significantly changed it feels like the tail winds are the same and may even be picking up a little.
But given the strength of the pipeline and kind of larger deals that we've seen bulky light.
<unk>.
Through our funnel.
Alright very helpful. And then Chad is we look at it.
You're talking about a little bit better expected performance on the mortgage side embedded in guidance.
I guess can you help us think about how some of those net new.
Mortgage all of our customers might be impacting that versus the expectation of especially the refinance market probably cooling off further.
And then how much of.
I don't know if conservatism or potential downside risk have you stripped out of the guidance as we think about kind of where ultimately shakes out by the end of the year.
Yes, thanks, Matt so on the mortgage side.
As discussed we do we are seeing.
The overall rate environment is having an impact on refinancings and those volumes.
So we will see those volumes.
Roll through on the parts of our business that.
That are tied to mortgage so both on the lending side the low mortgage.
And on the data verification side, whether we have the credit credit CRA is.
But offsetting that.
Decline in volumes is what you just referenced that we're doing obviously, we're having good success. It's a part of what Nicolas talked about and the success in go to market and adding new mortgage LLS customers to kind of offset and defray. The what we're seeing in terms of volumes and then leveraging our relationship our customers.
Gaining share as well as us finding new ways to add data and information into our credit reporting solutions to provide more value to our customers and therefore more revenue to us as well.
We're actually able to pass that along in the form of.
More.
They're having more of our partners added into our solutions, we're raising our own prices and pushing that through so.
We think that Thats, we'd initially talked about in the past of seeing mortgage as a percentage of revenue go into the low 2000, thirteen's, we're now expecting that to be in kind of the low to mid twenties for the year and we think thats that's.
That is a conservative view, given where we see the market today.
Yes.
Wonderful thank you.
And Keith Your next question comes from the line it Andrew Schmidt with Citi. Please go ahead.
Hey, guys. Thanks, so much for taking my questions here.
I wanted to dig into the non mortgage consumer ellas Pos side.
Can you talk about kind of the growth expectations embedded here for 2022 and then.
Across the lending modules in the non mortgage consumer LLS set, but if you could just discuss perhaps where youre seeing the most demand whether it's auto card personal et cetera, any color there would be great. Thanks a lot.
I I would make the comment yet in Chad if you want to.
Step in where it's not as more high level feel free to do that but.
I would say.
Andrew.
We are living in a environment where.
We put forming.
In my opinion very well.
Even with some of the headwinds like supply chain constraints in auto and chips and.
Our new new homebuilding material.
And there is not as good.
Low channel that I would say that really stand out.
In any way or shape.
If you kind of follow what the market is.
Same.
Thinking about.
What shifts may happen, we are starting to hear our clients are looking at investing mode and HELOC as an example, but we really haven't seen that take off I would say.
There is not an area that I would kind of highlight and say is this.
And worse on the consumer lending mortgage and non mortgage side.
To one another that its kind of.
Think we in a constrained world.
Folks typically would would initiate loans on assets and most of that.
We see or feel some off.
My expectation is and I don't have a crystal ball that we going to see 22 still being impacted by these constrains, maybe things tend to ease up.
You may have a better perspective than we do on it but we.
We as a company are doing everything that's within our control to.
To maximize the opportunities for us our clients and the consumers, whether it's investing in more integrations or assisting clients with better decisioning or better automation and marketing.
What is it kind of helps us keep the flywheel moving for us and our clients.
We have that control and will be doing it but I don't have one channel that I would say is outperforming significantly over the other or another one thats kind of pulling everything down.
Wasn't percentage points from trend lines off the past.
Jonathan do you want to add.
Yes, Andrew the only thing I'd add to that.
Yes, Andrew the only thing I'd add to add as Nicolas mentioned is our expectation is that we see more of the same so the impacts that we've seen through 'twenty one on volumes on non mortgage consumer we're rolling forward, so anything that ultimately improves the market.
Should be.
Beneficial.
But there is no expected big change to the upper the down as Nicolas mentioned.
Okay very helpful. Thank you both for that and then as a follow up on bridging the like one it's good to hear about the progress.
Maybe coming out of 2022 into 2023 could you talk about just.
Having that works substantially done what that might mean for either net new where cross sells just curious.
In a very very high level can you remind us.
Potential benefits of bringing the platforms together in a consolidated fashion. Thanks.
And.
A question from.
We are committed and on track to have migrated.
Private clouded vitamins over to public cloud, which ties in with our.
I didn't link one.
Platform.
And also integrating a quiet products into our platform in a more meaningful way.
We've done that with Salem.
We'll continue to.
<unk> platform to market with customers have the ability to acquire certain aspects of the platform.
As Lou standing.
Products like for example, mortgage but the benefit is really the single user interface.
<unk> sign on.
The analytics that can be done.
The data that's made available between the various components of the platform and moving into 2023 from 2022.
We will only be doing it.
Public cloud environment, and the benefits for us and our clients would be it's more scalable.
We have the ability to scale into markets, we not today, we can implement and take clients faster.
<unk> fast <unk>.
Vitamin win.
We just light up additional instances in the cloud.
But also.
Over time, as we think about our business and growth trajectory for the long term.
Being in that kind of environment with a platform, where you don't need to put data scientists down in markets you choose to go to.
But going through a cloud platform that gives you the ability.
Kind of the.
The benefit of speed when when you launch so its a strategic initiative for us.
Putting what are the only one out there for our clients complete.
Completing the move as well as.
Ensuring that this is our baseline investment that from a technology architecture standpoint, that's going to carry us for the next decade or longer.
And positioning the company to roll in acquisitions, that's cloud ready faster.
Scale the platform.
Fast, but it's the benefits to us and our clients are clearly there and the good news is.
From a selling and go to market standpoint.
It will be easier I think it will help us also.
Create a more scaled sales force.
When we enter an environment, where you can.
Really take that platform forward.
I would say very excited.
Very confident in our ability to complete the transition we've seen.
<unk>.
And achieved a great milestone in Q4 with the move of a very large component over to a public cloud environment. This part of Meridian linked one and that momentum will continue.
Throughout the year.
It will say 23 up and the go to market motion and our ability to light up customers faster.
It will just be an environment that we wanted for quite some time and we eventually will be there and we're very excited about it.
Got it thank you for that.
Clearly a lot of benefits on the demand side, but it sounds like also on the cost side or there could be some capex savings as well as you kind of move away from in house data centers is that the right way to characterize it.
You can think of it in the context of Capex moving away, but at the pace, we are growing and just kind of a little bit of color outgrowth to between 19, and 20, new customer growth was slightly less than 20% and our customer.
New customer growth.
Between 2020 , one was in excess of 30% it's nearly doubled so.
I would tell you as the costs for us to expand our data centers.
Is not where we want to make the investments. So yes, they will be savings on that front, but I believe with the backlog we have and then also the.
The momentum, we starting to see in our business space.
Basically, bringing on new logos and cross sell.
So ideas as the benefits are tied.
Tied into faster.
Scaling the ability to grow your footprint at an accelerated pace the ability to bring acquisitions into the fold faster and make it part of the platform.
<unk>.
While the the Capex might drop off there is going to be an increase in opex.
That will keep pace with the new customer wins in the cross sales as we keep scaling. So I don't want you to just think it's the one drops off and the other one.
It's not really increasing.
Chad anything you want to ethics.
No.
You said it Nevertheless, we will be moving capex to opex.
And so we will see the decline in the Capex to pick up on the Opex, we're kind of having the double spend now is we have both the data centers and the cloud infrastructure that we're moving to so through time, we hope to only have the cloud cost carrying us forward and be able to to see the reduction in the capex and the spend we've had on maintaining our own data center infrastructure.
Yes.
Thank you. Your next question comes from the lineup Alex Sklar with Raymond James. Please go ahead.
Chad you mentioned in the prepared remarks.
Do you have the tradeoff entire monthly commitments in favor of lower pricing can you just talk about if you've seen any noticeable changes in your revenue visibility in the sense of kind of going back to your customers and kind of ramping up what their monthly commitments are compared to prior years.
Yeah. Thanks, Alex So we have we have incrementally.
<unk> been working on moving customers to higher commitments in there and the contract process for a number of these customers they're already at.
They are already at a higher volume. So we're basically just locking in the revenue we're already receiving from these customers when we move them onto that.
Committed construct and for new customers.
Locked in at that commitment level and then as their revenue grows through time, they may choose to step their commitment level up to receive lower pricing, but candidly, it's not been a big phenomenon of our customers looking to raise their commitments to take advantage of lower pricing.
And the reality is but we have seen the revenue that is in that commitment category increase.
In light of bringing on these new customers and renegotiating existing contracts. So we have more revenue committed but that commitment hasnt come really at the expense of having to take a much lower per FTE from each each entity.
Got it Okay, and then I don't know, if Nicholas or Chad I want to take this one but you talked a lot about the services backlog and I'm just curious given the revenue recognition model how much of a leading indicator is that for logo growth or kind of.
What's your what you can see in terms of accelerating subscription revenue growth.
At the end of 'twenty, two and 'twenty three.
Yes. So the revenue recognition is as we're not recognizing revenue from these customers until they go live.
And their contract period doesn't start until they go live as well so we're not losing any contracted revenue.
During the implementation phase.
As Nicholas talked about the faster we can get the customer live the sooner, we'll be able to receive and recognize the revenue and candidly the customers happier because they get access to the technology suite.
So as the investment in the services capacity to speed time to market time to implementation really is a win win win for the customer for us.
And for the both the services and the SaaS revenue streams.
So that is an indicator and so as we are successful in doing that we should see more customers coming online going forward for but that.
What Nicolas is talking about around the success in signing new logos right that successes, what's building that backlog.
So the leading indicator of Nicholas having the sales success is pushing entities into the backlog that we're now going to convert into revenue more quickly.
Got it that's very helpful color. Thank you.
Thank you Gary good question.
Your next question comes from the line of Bob Napoli with William Blair. Please go ahead.
Thank you and good afternoon nice quarter.
So just on the.
The guide a big picture question, I guess long term target EBITDA margins of 43% to 48% that I understand you're investing a lot and you have a lot of momentum in the business and youre focused on growth, but just any thoughts on.
The.
The timing of the trend.
That you have any goals you have in moving towards that long term target.
Yeah, Bob Thanks for the question so yes so.
The guide obviously for the year is right around just shy of 40% on the EBITDA. We still think the long term target absolutely makes sense for us we've talked about the investments, we're making we've talked about.
The impact on 'twenty two on gross margin from the services investment, we're making but again the ROI on that is as Nicholas said cashing the cheques.
So thats positive and then we think as we mix the mix moves more to SaaS as the services moved those entities into our SaaS revenue, we should see both the gross margins improve which dragged along the EBITDA margins.
And also just converting the spend on R&D and sales and marketing I talked about kind of the amount that we're spending on a year over year basis again, all of that is really to push and accelerate revenue.
And when the SaaS revenue comes on at a higher margin that will certainly through time.
Pull us to the margins that we're targeting.
Thank you and then I guess.
The 30% growth in.
New customers in 'twenty, one that's a nice acceleration.
Is that.
It seems like it's been the demand just broadly in the bank Tech space and that's intact. So you've seen we've seen a lot of.
Demand, but have you seen from your customer base.
More aggressive posture is and maybe this is a post COVID-19 posture and realizing the need for digital.
I know you've ramped up your marketing investment somewhat specific to you, but but are you seeing a mindset change that's driving that and is there a change in the IRR per customer as they.
Are you, adding larger customers.
Let me speak to the mindset, we definitely see.
An increased level of interest in our target segment of the market.
To invest in future technology and.
Yes.
I do believe the pandemic.
At a point in time pause.
And.
Have folks to rethink what the business should look like.
The next decade or longer.
Not because I know what meridian link.
Investing in are doing but I really believe we at the right place at the right time with the right platform for the mid market and what we do raise the night.
Hum.
We not the cheapest solution in the market.
And were not a standalone solution that companies need to invest dollars into integrating across there.
Technology landscape, we bring a platform that they can run a large portion of the business and financial institutions that.
All forward thinking.
Want to be.
More engaging with the broader customer base.
Same to engage.
In various labels of interactions and discussions with us somebody start with doing a whole bunch of Webinars learning more what we offer.
It turns a good demos.
We ended up.
Nurturing discussions.
And working with clients and I think it's a mindset that we're starting to see with folks realize they can actually grow the business faster as a more efficient is it.
They have better access to data and they can make decisions faster.
Their business for their clients and they also are starting to get to the point, where they can offer the most competitive rates.
As they work with Meridian, Lincoln and analyze risk data in this whole cycle. So from my perspective.
There isn't a night with as a market segment that wants to serve the clients better want to outperform compared at this has not been investing to date yet and.
Our offering is again my opinion, the market, leading offering with the integrations, we have the breadth of the platform.
How we accelerate and have these midmarket financial institutions kind of outperform.
Non meridian link.
<unk> so the way.
I would think of it as is.
Yes people are starting to.
Do you think about what the business is going to look like post COVID-19 .
What should they be doing to attack new customers, new clients, new named Us and how can.
They would be competitive in a world that has shifted and changed.
Where the branch is performing.
Performing the same function that historically did before COVID-19 .
And when.
When I speak to prospects.
When we when we connect with clients that.
<unk> incremental meridian link.
Solutions.
That is certainly one of the most prominent themes all of the discussion is.
Thinking about where the business will be in a year or two from now.
Or even longer term.
Great. Thank you I appreciate the answers.
Bob I would just add when you want to comment.
Yes, I would add one comment which is I don't think were noticeably seeing an increased <unk> on new logo sales right. We typically lead with consumer LLS and then Nicolas talked about how we're adding additional functionality and growing <unk> through time, but I will say, we have focused on really kind of pruning the <unk>.
Mall and of our customer base some of the smaller customers that came through the acquisitions, we've done in the past year and a half and really that's leading and youll see that were just having higher IRR per customer as a result of that.
Thank you your next question.
Comes from the line of Park and language Paul. Please go ahead.
Yes, thanks for taking the question sort of a follow up to the last one if we just look at the overall SaaS spend.
Financial services sector, I think you've highlighted that as a real tailwind to your business over the last few years in the context of a more uncertain macro.
And thinking back to the company's history, what have you seen from these institutions in the face of an uncertain macro do you think there is any potential for them to perhaps pare back their spending and then secondarily what are some of the competing interests here and other places that theyre looking to digitally transform where.
Meridian link is trying to get in there and be the priority of choice for those customers as they think about the next digital transformation project, we're taking on.
Chad do you mind, taking that one for a second.
Yes, no problem.
I would say at a macro level right, we're still seeing the trend of these institutions investing in technology.
Part of the Tory institutions, there is still pressure from the neo banks from the Fintech from all the startups who are looking to.
Propagate their new solutions, and so are our customers and the community banks credit unions are very focused on keeping up in that in that.
In that marketplace. So we haven't seen any slowdown in historically, even when times or.
Looking further back in time, even in difficult periods around.
More economic uncertainty.
And Thats. The time that then folks are looking to turn to technology to find ways to attract customers to make better lending decisions and again our solutions basically help these entities.
Attract deposits basically attract lending make loans and get interest income on those loans and that's 80% of their top line.
So having a solution ready to go out and.
In a difficult market and find and we continue to ensure that there they're driving their top line performance is something that we that's a conversation we relish, having even if the overall environment gets a little bit more difficult.
Got it I appreciate the feedback Chad congrats on the quarter.
Thanks.
Thank you and that concludes our question and answer session for today I'll now turn the call over to our CEO <unk> <unk> for closing remarks.
Thank you operator and thank.
Thank you for all those who have joined US today for our first full year.
A review of our performance as a public company and I'm really excited about our outperformance in this first year of being public.
What I said earlier is even more remarkable given the pressure from supply chain constraints, and a normalizing mortgage environment, which.
Again from my perspective highlights the tremendous strength of our consumer lending business and also the opportunities ahead of us.
As we look ahead I am confident that our investments in 2022 will.
We will position us extremely well to continue to scale and accelerate the business.
I'm looking forward to when these headwinds subside and that becomes a tailwind for us as we are ideally situated to grow our market leading position.
In the meantime, we are confident we can deliver another year of strong revenue growth was based in class profitability.
Lastly.
Yes.
I want to thank our amazing employees, and our loyal clients, who trust us and inspires us to be better every day.
We've had an exciting week and I'm looking forward to closing our acquisition of <unk> and I would love to welcome officially welcomed the team with <unk> customers and partners to the Meridian family and.
Thanks, again, what I can say to you our commitment being on our call today really appreciate you joining and have a great afternoon evening wherever you might be yet.
Operator.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Thank you.
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