Q4 2022 Meridianlink Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by, and welcome to Meridian Link's fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode.
Speaker 1: After the speaker's presentation, there will be a question and answer session. Please be advised that this conference is being recorded. I would now like to turn the conference over to your first speaker today, Eric Schneider. Eric, please go ahead. Good afternoon and welcome to MeridianLink's fourth quarter fiscal year 2022 earnings call. We will be discussing the results announced in our press release issued after the market closed today.
Speaker 2: of significant risks and uncertainties, and our actual results may differ materially.
Speaker 2: For a discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release and the other reports and filings we file from time to time with the Securities and Exchange Commission.
Speaker 2: All of our statements are made based on information available to us as of today, and, except as required by law, we assume no obligation to update any such statements. During the call, we will refer to both GAP and non- GAAP financial measures.
Speaker 2: You can find the reconciliation of our GAAP to non-GAAP measures included in our press release which is posted to our investor relations website.
Speaker 2: With that, let me turn the call over to Nicholas. Thanks, Eric. Good afternoon, everyone.
Speaker 3: Thank you for joining us today. 2022 was another successful year for the company. We executed well and closed the year strong with record software bookings, both for Q4 and in Meridian Link's history.
Speaker 3: We are proud of the many achievements from the quarter and year and are thrilled to see the consistent performance of the business.
Speaker 3: year over year to $70.6 million and 33% adjusted EBITDA margins.
Speaker 3: We continue to see notable strength in the consumer lending side of our business, up 23% year over year in the fourth quarter. Our business model remains resilient, and our customer base continues to thrive. Today's lenders are more focused than ever on the need to digitally transform and offer frictionless lending experiences to their clients.
Speaker 3: We are proud of the fact that customers of our MeridianLink consumer platform are achieving nearly 20% faster loan portfolio growth than their competitors. We have achieved healthy sales activity through the year that we expect to continue across 2023 as customers strive to improve their client experience.
Speaker 3: as well as seek business efficiencies in an uncertain environment. We continue to pay close attention to external conditions and market expectations, but want to be clear that so far this year we have not seen slowing in deal timelines or a reduction in pipeline numbers.
Speaker 3: We remain laser focused on the lighting our customers, expanding capabilities across our platforms, and ensuring our customers can efficiently serve more consumers, capturing more wallet share and outpacing the competition. In a few minutes, Sean will speak about our Q4 and full-year financial performance.
Speaker 3: and provide 2023 first quarter and full year guidance. Before that, I will give several updates on our three areas of growth acceleration.
Speaker 3: 2023 first quarter and full year guidance. Before that, I will give several updates on our three areas of growth acceleration. First,
Speaker 3: engaging more deeply with our customers. Second, expanding the capabilities of our platform. And third, empowering our customers to grow more quickly and better serve their communities.
Speaker 3: In Q4, we have refocused our company mission, vision and values to strengthen the culture of Muradian Link and catalyze the cascade of our objectives and key results throughout the business.
Speaker 3: Our mission to be the most trusted financial services technology platform speaks to our deep experience in the space and our relentless focus on creating better experiences for our customers clients.
Speaker 3: Our vision to power life's important financial moments ensures our customer standout amongst competitors by efficiently offering the basic experiences for borrowers. Our values and objectives now represent how we are scaling our organization. Our vision to power life's important financial moments ensures our customer standout amongst competitors by efficiently offering the basic experiences for borrowers.
Speaker 3: to meet customer needs in a digital era focused on fast, frictionless interactions with consumers. Our values also reinforce that customers are at the heart of everything we do.
Speaker 3: from a focus on daily improvement, being stronger together, delivering on our commitments and driving customer success, which in turn is our success.
Speaker 3: With those values in mind, we have completed a restructuring exercise that right-sized our cost profile and realigned our resources with a focus on customer-centric areas of the organization.
Speaker 3: This further enables near and long-term customer success. Cost savings as a result of this restructuring will help fund the investment in scaling initiatives, accelerating services, fueling go-to-market, and enhancing product innovation.
Speaker 3: All areas of growth that we will review today. sshawn will go into the financial implications momentarily, but I want to emphasize how committed we are to practicing cost discipline in the face of an uncertain environment, while continuing to invest to meet our customers' needs.
Speaker 3: Part of this realignment also includes changes to our organizational structure.
Speaker 3: For one, we announced the retirement of our Chief Operating Officer and the transition of several responsibilities to other members of our senior leadership team.
Speaker 3: Before I speak more about our organizational changes, I want to wish Ellen well any Enlightenment then.
Speaker 3: We have had the opportunity to work together several times over the last 20 years and he was one of the first people brought in by Tomo Bravo as Meridian Link transition into its second stage of growth.
Speaker 3: Alan's leadership later foundation that we will build upon for years to come as we drive faster growth going forward. We also announced the creation of a new role, Chief Customer Officer, to lead our support, services and customer success themes.
Speaker 3: accelerate productivity and engagement across the board. We've also streamlined both leadership and their teams across the business with the aim to reduce operational complexity. In summary, this recalibration of our organization and cost profile positions already on link to be laser focused on strategic initiatives.
Speaker 3: continues to drive innovation, sales and growth. We are investing across the board and sales and marketing leadership and implemented team structures that contributed to the most robust pipeline we have seen to date. As I mentioned, we hit record software bookings and repelled the cross-sell momentum of Meridian Link 1, signing 10 consumer lending customers to our mortgage lending solution.
Speaker 3: We see these as fantastic signals that our platform strategy and go to market is working. In addition, our cross-cell and up-cell motion is a tremendous opportunity for meridian link, representing 60% of the bookings in the fourth quarter.
Speaker 3: We also continue to win new customers in the market, another key component of our growth algorithm. And finally, we are excited to add Sirresh Balasubramanian to our executive leadership team as Meridian Lynx new chief marketing officer.
Speaker 3: With the added benefit of the racial software experience and focus on the man generation, we will bolster our ability to capture more share in the market.
Speaker 3: Moving to high-value deals, we landed eight deals from a quarter that demonstrate the ongoing demand for a multi-product platform, MeridianLink1. Around two thirds of these deals were driven by new customers, with the remainder driven by cross-cell and up-cell opportunities.
Speaker 3: This is just the beginning of customers capturing the benefits of MeridianLink 1. The platform breaks down the silos that separate landing lines of business in the market. And as a result, our customers can make optimal landing decisions and integrate with the key functions and necessary data to accelerate growth.
Speaker 3: I'm already linked one offering also enables the power of platform bundling by better addressing consumer needs with connected solutions across the entire death wallet.
Speaker 3: One case in point came from a credit union that's been serving its members for over 20 years. With more than 50,000 members and 1 billion in assets under management, the organization was looking for a digital lending platform to support the varied needs of its community. The credit union selected Muradian Link 1.
Speaker 3: leveraging meridian link business in tandem with meridian link opening and consumer. This is a great example of how our platform is designed to capture more volume faster, resulting in more revenue for both the customer and meridian link.
Speaker 3: To conclude, we had a solid finish the year and remain bullish on our pipeline health in 2023, which we expect will only improve as we have recalibrated the business to feel the customer engagement necessary for our next phase of growth. Moving on to our second area of focus.
Speaker 3: expansion. 2022 was a monumental year for expanding our platform's capabilities.
Speaker 3: as we have completed the transition of our solutions from hosted environments to the public cloud.
Speaker 3: This is a prime example of how we have been investing heavily for the last few years to expand the innovative functionality of the Meridian Link 1 platform, bringing increased security, speed and scalability to our customer base.
Speaker 3: Since executing on a cloud transition, a full-quarter early in Q3, we have continued to make significant improvements to our technology to ensure it is scaling for customer needs.
Speaker 3: Not only does the cloud allow a faster landing process for the customer, but it also provides a faster bulk process for us internally. We have been heavily focused on accelerating product bulk times.
Speaker 3: deploying features and functionality fast across our platform. Finally, through the public cloud infrastructure, we are able to complete our standard security testing more efficiently.
Speaker 3: The cloud transition is just one example of our commitment to product innovation, which has been a pillar of our success since inception and remains a driver of expanding our platform's capabilities to add value to customers today.
Speaker 3: In the fourth quarter, we completed enhancements to our marketing automation solution, Meridian Link Engage. These new features save valuable time and launching targeted marketing campaigns.
Speaker 3: In many cases, resulting in triple-digit ROI for the lender. We also recently launched our integrated business lending offering, meridianling business building on the innovative functionality acquired through the StreeChairs Atlas platform to address met market business lending needs.
Speaker 3: This new offering enables advanced decisioning capabilities through a lightweight digital laning solution that has up and running in 90 days or less. To further expand our business intelligence to meridum link insight, we began piloting a new score card with customers in the fourth quarter.
Speaker 3: The scorecard provides customers with relative performance metrics against peers, unlocking the power of data to drive more competitive business decisions. By expanding our platform's capabilities as seen in each of these examples, we aim to attract new customers and drive cross-selling, which together
Speaker 3: drive more volumes and revenue for Meridian Link. Finally, Meridian Link empowers customers to compete, grow, and succeed in the markets in which they participate. We have a track record of enabling customers to win more clients and capture a greater share of their client's debt wallet.
Speaker 3: We do this by providing best-in-class capabilities, power power solutions and integrations to our partner marketplace. Part of Mururi Link's value proposition is derived from having built an extensive network of hundreds of partners that help accelerate and differentiate customers in the digital learning process.
Speaker 3: I'd like to talk about a few of the new integrations and increased capabilities from this channel that we have announced in the fourth quarter. First, ReadyLink 1 is now integrated with the work number from Equifax.
Speaker 3: a partnership that provides a centralized commercial repository of income and employment data. Lending customers can now instantly leverage verifications, providing a more timely, well-informed lending process.
Speaker 3: This integration expands availability of the work number from ReddyLink mortgage customers to also those on ReddyLink consumer, supporting a streamlined landing experience across the MeridianLink 1 platform.
Speaker 3: Another partner highlight comes from the data verification part of the business. In the fourth quarter, we expanded our background screening capabilities for our CRA customers through an integration with leading social media background screening provider ferretly. This partnership gives taskwigs customers the ability to screen social media.
Speaker 3: As the nation saw increasing consumer interest in home equity lending, we announced an integration with first close a leading Fentech provider of data and workflow solutions for mortgage and home equity lenders. According to first close by leveraging their one equity solution, we're in a link consumer and decision-lander customers can experience total time savings of over 75% of the time. We're in a link consumer and decision-lander customers can experience total time savings of over 75% of the time.
Speaker 3: journey, I would now like to highlight examples of customers selecting MeridianLink as the key catalyst for improving functionality and taking share on the market.
Speaker 3: In the fourth quarter, we closed the deal with a $1 billion created union customer, taking the opportunity from a well-known competitor with a global footprint.
Speaker 3: We want the sales process as a result of our indirect lending capabilities. Strong customer references and product roadmap that align well with the customer's lending growth strategy.
Speaker 3: Another new logo went from the corner was a bank customer interested in MeridianLink entry opening and consumer products. After demoing the solution, the customer was blown away with the ease of use for their clients, which aligned with their main goal to break into the younger demographic and grow volume. This one demonstrates the flexibility of our offering to move down market.
Speaker 3: empowering smaller players with the best capabilities of the largest institutions. To end on a one that shows our ability to empower growth through product innovation, we signed an $8 billion credit union on our new advanced decisioning futures and enable stature of lending.
Speaker 3: In this case, the customer is targeting over 17% auto decision applications, a level well above where most competitors perform in the market today.
Speaker 3: Higher automation results and faster funding and more revenue for the customer. Before I conclude, I'm very excited to welcome Mark Sacheleben to the MeridianLink Board of Directors.
Speaker 3: As our board chair remarked, Mox experience guiding innovative technology companies through impressive growth milestones combined with these financial expertise makes them a perfect addition to our team as we continue our organizational transformation. I now want to emphasize again how MeridianLink continues to deliver.
Speaker 3: directly aligned with ours. We have a track record of intentional capital allocation, investing organically and inorganically, and areas that provide value to customers and shareholders.
Speaker 3: In the face of uncertain macroeconomic conditions in 2023, we will continue executing well on what we can control as we did in 2022.
Speaker 3: staying highly focused on the three areas of growth that I laid out today. We will continue engaging with customers to meet and exceed the digital winning needs, in part by prioritizing investments that expand our platform capabilities and revenue opportunity. Our fly will start with empowering.
Speaker 3: our customers to compete and better serve their clients and communities. I'm confident in our ability to drive this momentum forward, kicking off the next phase of growth for MeridianLink. With that, I will now turn the call over to Sean to talk about our financial results and guidance. Thank you, Nicholas. And thank you again to everyone for joining us on the call today.
Speaker 4: Before reviewing our financial results and guidance, I'd like to echo how impressed I am with the achievements in the fourth quarter and four year. Our results are a reflection of an impressive team effort and culture, and for that I want to first express my sincere gratitude.
Speaker 4: Since joining Meridian Link in June of last year, I've seen this put in place important structural changes to T.S. up to enter the next phase of growth and drive to a billion dollars and beyond.
Speaker 4: In the face of uncertainty, we continue to execute well on what we can control, balancing cost discipline and strategic investments to accelerate growth. Near term, we're closely monitoring how macroeconomic conditions are affecting the market and are hyper focused on providing transparency and predictability for our business. With that said, we're going to increase the frequency of reporting our annual-
Speaker 4: of 258.9 million and a net retention rate of 96%.
Speaker 4: Specifically, however, our lending software solutions finished the year stronger at 104%.
Speaker 4: And excluding the impact from mortgage volumes, the net retention rate of our consumer lending revenue was 108%.
Speaker 4: The primary drivers of our network tension rate are cross-selling additional modules, volume growth, and pricing increases. There is stability in our retention rate due to how sticky our customer base is.
Speaker 4: As the more automated and integrated their lending process becomes, the lower the probability for turn.
Speaker 4: As Nicholas mentioned in his remarks, we also finished another quarter with an impressive roster of new logo wins. In the fourth quarter, we had 2034 total customers using our software solutions. On our organic basis, total customers grew 2% year over year. This is not a departure of past periods and represents our ongoing go-to-mark
Speaker 4: fourth quarter financials. We generated total revenue of 70.6 million up 10% year over year. They've been primarily by strengthen our consumer lending transaction volumes.
Speaker 4: increased product delives and the acquisition of open close. We continue to report consistent growth across the business in the face of a declining mortgage lending market.
Speaker 4: The software solutions, lending software revenue accounted for nearly 78% of total revenue and grew 26% year over year. Mortgage-related revenue within lending software solutions inclusive of open clause.
Speaker 4: accounted for 10% of the total. Excluding that impact, consumer lending revenue grew 23% year over year, closing out the year with the fastest growth rate for any quarter in FY22.
Speaker 4: data verification software revenue accounted for nearly 22% of total revenue and declined 23% year-over-year.
Speaker 4: This was driven by the 34% decrease in mortgage-related revenue, which represents 59% of total data verification software solutions. As you can see in our results, total mortgage-related revenue was down 15% from last year and generated 21% of overall meridien length revenue. This was driven by the 34% decrease in mortgage-related revenue.
Speaker 4: While the mortgage loan market continues to be a headwind, our focus remains on taking share in the market and adding capabilities to our solutions that enable customers to win wallet share through superior speed and client service. Moving to profitability.
Speaker 4: Adjusted gross margin in Q4 was 70%. Counting for stock-based compensation, gap gross margin was 62%. Non-gap operating income was $8.5 million.
Speaker 4: and gap operating income was 0.6 million. On a gap basis, net loss was 5.5 million, and adjusted to EBITL was 23.2 million representing an EBITL margin of 33%.
Speaker 4: Now breaking down our investments in the quarter. On a non-gap basis, we strategically invested 55% more in sales and marketing.
Speaker 4: and 37% more in R&D compared to the fourth quarter of last year. Turning to the balance sheet and cash full statement, we ended the fourth quarter with 55.8 million in unrestricted cash and cash equivalence, down 60 million from the end of the end of the fourth quarter of last year.
Speaker 4: the third quarter driven by the acquisition of open close. Operating cash flow in the fourth quarter was $7.4 million and free cash flow was $5.2 million or a 7% free cash flow margin.
Speaker 4: Now let's look at full year 2022 results. It's important to acknowledge the much stronger than anticipated headwinds we faced last year.
Speaker 4: For one, we entered the year with our mortgage related revenue representing 30% of total revenue. The speed and level of mortgage interest rate increases in the first half.
Speaker 4: go refinancing volumes down 85% and purchase volumes to drop approximately 40% of the market. While we were insulated by our customer next.
Speaker 4: contract structure and ongoing new customer additions we will not immune to the collapse in activity.
Speaker 4: For the full year 2022, we generated total revenue of 288 million up 8% year over year. While we absorbed a $15 million headwind related to mortgage, we still grew the business by 20 million. A great example of proper execution in the face of an unpredictable rate environment.
Speaker 4: For software solutions, lending software revenue accounted for nearly 72% of total revenue and grew 18% year over year. Mortgage related revenue within lending software solutions.
Speaker 4: inclusive of open clause accounted for 8% of the total.
Speaker 4: excluding that impact, consumer lending revenue grew 20% year over year, representing the durability of our growth algorithm that is fueled by the areas outlined by Nicholas today. Data verification software revenue accounted for nearly 28% of total revenue and decline 12% year over year.
Speaker 4: This was driven by a mortgage-related revenue, which represents 64% of total data-verification software solutions. However, we continue to outperform the market as a result of our cross-selling non-credit volume types into our CRA customers. Again, the mortgage headwinds are clear in our results. But this portion of our revenue has come down to the end.
Speaker 4: ...leaningfully over the years.
Speaker 4: Now generating 23% of overall learning and revenue in 2022 compared to 30% in 2021 and 39% the year before. With our healthy pipeline and the inevitable normalization of the mortgage market, the momentum in our business remains strong. takeaway
Speaker 4: For profitability, adjusted gross margin for the full year was 70%. Accounting for stock-based compensation, gap gross margin was 63%.
Speaker 4: non-GAAP operating income was $55.9 million and GAAP operating income was $28.6 million. On a GAAP basis, net income was $1.3 million and adjusted EBITDA was $111.2 million representing an EBITDA margin of 39%.
Speaker 4: Our margin profile reflects our ongoing cost discipline, which allows us to invest in generating demand and delivering our product roadmap. Adjusted for stock-based compensation, we strategically invested 35% more in sales and marketing and 25% more in R&D compared to the four year 2021.
Speaker 4: Both of these investments represent our delivery on the commitment we made at this time a year ago, which was focused on engaging more deeply with our customers to go to market and expanding our platform capabilities through innovation. We expect a strong long-term return on these investments.
Speaker 4: and will continue to examine each expenditure on its individual merits. To provide an update on our investment and services, software projects delivered in the corridor were again over 50% higher year over year. We also continue to see an improvement in ACB release.
Speaker 4: This progress will only come from going forward, accelerated by the reallignment of our operations organization, and the restructuring exercise that was designed to serve more customers with greater efficiency. Now, turning to the cash flow statement for the full year 2022.
Speaker 4: Operating cash flow is 74.6 million, and free cash flow is 65.2 million, or 23% free cash flow margin. Word in-links ongoing cash generation provides protection in this period of uncertainty.
Speaker 4: while enabling strategic capital allocation for us to build value for our customers and shareholders. I'll now pivot to guidance for Q1 and initial guidance for the full year 2023.
Speaker 4: We expect to continue adding new customers and increasing module penetration among existing customers at a level that more than offsets the remaining impact of the decline in the mortgage market volumes. It's worth noting that the sharp increase in mortgage interest rates occurred during the second quarter of 2022, so comps in the first half of the year will be the most challenging. For the first quarter, another financial factor to consider is Re Top Reiste Group.
Speaker 4: Estimated total revenues expected to be between 72 million and 75 million compared to 72.8 million for the same period in 2022. This represents an estimated year over year change of negative 1% to 3%. For the full year 2023, we are expecting total revenue between 304 and 310 million compared to 288 million for the same period in 2022.
Speaker 4: This represents an estimated increase of 6 to 8% year-over-year. For the mortgage-related revenue, we expect the mortgage market to contribute approximately 25% of revenue for the first quarter of 2023 and anticipate that level to continue throughout the year. To provide more color around the growth drivers in our total revenue, we're expecting the momentum from cross-selling mortgage lending.
Speaker 4: On the data verification side, we're expecting a continued decline in mortgage-related revenue given the anniversary impact of tough comps from the beginning of 2022. We expect revenue from non-mortage-related data verification software solutions to be flat year over year as a result of headwind in the employment screening market coming off.
Speaker 4: post-pandemic hiring highs. We break out these components to improve the level of transparency when setting expectations for the year. The guide implies that consumer lending growth will continue momentum this year.
Speaker 4: We're expecting more demand for consumer lending products as consumers better position themselves for an evolving financial landscape. There's ample opportunity to accelerate growth for the company by leveraging the differentiating cross-sell and upsell power of MeridianLink 1. With the platform's innovative functionality and access to hundreds.
Speaker 4: million, representing EBITDA margins of approximately 33% at the midpoint. For the full year 2023, estimated adjusted EBITDA is expected to be between 109 million and 115 million, representing EBITDA margins of approximately 36% at the midpoint.
Speaker 4: Our EBITDA guide reflects the ongoing investment back into the business, focused on scaling, go-to-market, and enhancing product capabilities.
Speaker 4: The fund needs investments, we are leveraging the savings from the restructuring. This is a strong example of our discipline approach to capital allocation.
Speaker 4: We have thoroughly examined and are investing in areas that demonstrate great potential to propelled Meridian alone forward into the next stage of growth.
Speaker 4: I'd like to end by reiterating the significant opportunities from our end like as we enter 2023. We will optimize our return on invested capital and deliver on our value proposition to customers and shareholders. Shareholders.
Speaker 4: Working links track record of consistent profitability and growth demonstrates the resilience of our business model and superior quality of our customer base. At the end of the day, customers now more than ever need an efficient digital solution that is designed to accelerate growth.
Speaker 4: We have been the leader in providing that solution for decades and we will continue to deliver on that promise. With that Nicholas, Chris and I are happy to take any of your questions and I'll turn her back over to the operator.
Speaker 4: We have been the leader in providing that solution for decades and we will continue to deliver on that promise. With that, Nicholas, Chris, and I are happy to take any of your questions and I'll turn it back over to the operator. Thank you.
Speaker 1: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a three tone prompt acknowledging your request. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys.
Speaker 1: One moment please for your first question. Your first question comes from Koji Ikeda of Bank of America. Please go ahead. Hey guys. Thanks for taking the questions. Just a couple of me from me here. First question, wanted to ask about the guidance here for the first quarter and for the full year and really asking about the...
Speaker 4: is now a day as you know in as we go quarter to quarter I think the
Speaker 4: You know, a lot of it is yet to be seen with how the market does or doesn't trend up. But we will typically see a software Q1 and Q4, then we do Q2 and Q3. So that's the answer to your question. Obviously, there's a lot of variables built in with...
Speaker 5: our business model and how it trends with the overall macroeconomic environment. Got it, got it. And then I wanted to ask the follow up on the on the reorg news that you're talking about today and really wanted to ask, you know, was the reorganization just...
Speaker 5: Is this a natural evolution of the business? I wanted to ask you that versus any sort of right sizing of capacity given the period Thanks guys, thanks for taking the questions. Sean again, I think it's a mixture of both actually. When you say a natural evolution
Speaker 4: We've been highly acquisitive in the past, and so there is some natural redundancy, operational efficiency, et cetera, that we needed to take action on. I also think this is a realignment, reorganization effort to get better aligned to our customer. So if you take services, for example, this is an effort to accelerate the velocity on time to revenue. We've been talking about that for a long time. We've also taken this as an opportunity to refocus a lot of our product and development efforts towards things that matter to the customer, towards products that matter in the market and diverge away from products that aren't necessarily quite as effective as they are.
Speaker 2: I apologize. What did you already drop? Can you repeat the question? I think I caught unit sales as it relates to the more. Yeah, just something on the Morgan business itself. I was curious if you can give us a sense of how unit sales, new customer additions have trended there in the associated backlog and what you're contemplating in 2023.
Speaker 4: Yeah, so I mean, I can give you that in Q4, for example, mortgages from a lending perspective was in my script was at 20%. There's a huge data component of that as well. It will grow seasonally in Q1 and throughout Q23, but.
Speaker 4: Some of that is related to open close. As we've disclosed prior, that's about a million dollars a month. And so that will be fully contemplated in 2023 and is incorporated into our guidance. And as you see, kind of middle of Q2, Q2 come to an end. The comps will become a lot easier as we saw the second half of FY22.
mortgage kind of in a complete free fall. And so I think there will be growth associated with mortgage from that as well. And hopefully that answers your question. I have a little add to that on the sales front. So note that we have an expanded sales team now that we acquired open clothes. And the biggest dynamic shift you're gonna see is the acceleration of sales on the depository front and the increased focus of sale on the platform, which is also referenced in Nicholas's discussion where we saw 10 cross-sell deals.
from mortgage into the consumer base, and we're going to put more investment on that as reference than our increased sales investment to accelerate that code through the year. But I think this I think is also fair to say that you four has been most useful mortgage booking score or buy new customers. Got it. OK. Appreciate the color on that. And then maybe just a quick follow up here. I was curious if you can give us a sense of some of the additive features that you're bringing to the table with the law.
This is quarter our investment thesis in Street Ships. Now as we build up our crop cell motion, we're combining with what we already had in a business account opening with what Street Shires have prior to acquisition from business lending and further invested to business credit cards.
to provide a broader package for these institutions to serve a market that they previously had an invested as hepland. So it's a great opportunity for them to grow their business and for us to help them do it.
All right, thanks again for taking the questions. Thanks, Parker. Thank you. The next question comes from Scott Wirtzel. We'll research. Please go ahead.
Good afternoon, guys. And thanks for taking my questions. I'm just going back to the restructuring. And I just want to understand in terms of where you're sort of reallocating some of those dollars that you're saving from the workforce reduction.
Yes, got Sean. Be happy to answer that. I think it's pretty clear of the script what we're focused on, but very specifically around scaling, think automation technology initiatives. We are heavily focused on.
getting services right so there will be investment dollars there. We continue to invest and go to market and the raw and go to market, meaning not just sales, but revenue operations and streamlining of the go-to-market processes as well as product innovation. And so there's R&D dollars that we have allocated even though we're being more...
slightly focused with those dollars, there will be investment there as well. And this isn't just a, you'll notice this isn't just a, take the restructuring dollars and use only the restructuring dollars, we had already planned to continue investing. So I think that this isn't just a cost play. This is an initiative that really reshapes the budget business and gets more clarity and more focus in the business as we go forward.
There's a mix of reasons for that, deferred income taxes. We had some customers that had, how do I say, more generous payment terms, so they had some deductions as well as some other various things. That is not what we typically put.
put out in terms of operating cash or free cash flow. So we're very focused on cash flow and would expect similar if not better results for FY23.
Got it. Thank you guys. Yeah. Thank you. Thank you. The next question comes from Alex Schlar of Raymond James. Please go ahead. Yeah, thanks. I want to ask about the underlying strength in your consumer non-mortage lending solutions. The growth accelerated the year progress. Can you just talk about what's driving the higher volume?
acquisition of open close. So that's as a starting point. The strength for consumer, I think, has continued throughout the year. You know, we relied.
on the same data sources as a lot of the analysts do, whether it's Kuna, whether it's, you know, if we're looking at auto sources, et cetera. So we actually expect the growth to slow in 2023. Now we still think it's going to grow. It's the basis of our growth story going forward, but we don't expect.
in 2023, the same levels of growth. Hopefully I'm incorrect on that, but that's not what we see in the market right now. Okay, great. And then I just wanna follow up on your, this came up in the prepared remarks and you answered one of the earlier questions, but what exactly is changing as a result of the reorganization in terms of the service team? And again, specifically talking to one of your initiatives around accelerating time to revenue, kind of curious to some of the moving parts there. And any staff today in terms of improvement in that regard?
Sure, this is Nicholas and let me double click on that a little bit. We had our services organization more structured to be doing handoffs in functional areas, delivering on a project. Part of the restructuring we're doing is moving to practice services practices, where a project will basically live with the services practice from cradle to grave. And the handoff training.
will all be part of that practice. It minimizes the handouts between teams. It's more efficient between handouts and handbacks and we feel and see the scalability of our solution and building knowledge for specific integrations or types of implementation within practice areas to be the future.
Foundation of scaling services to the next level. It also positions you better to, in the future, build out relationships with partners that can complement practice areas, specifically on the implementation or...
resources located elsewhere. So from that perspective, it's kind of, we got to a point where size became a gating factor as a number of headcount and we wanted to become more efficient and say that out for future growth. Yeah, now, so you heard me say a little earlier. I just want to reiterate this point. This is a very good example of continuous improvement, right? So year over year for both Q3 and Q4, we were 50% better in terms of ACV release.
We are doing well in service, we're doing better in services, but this reorganization is just the next step in the evolution to get us more efficient to drive faster time to revenue. We've quoted in the past six to nine months to get a project live on average. We've reduced that to six to seven months on average. I think you and I've talked personally. I really hope that that continues to go down and hopefully dramatically over time. Okay, thank you both. It's very color. And maybe before we move on one last comment from Nicholas here is.
We also set up two lines of business in services. One is our professional services organization that would typically take on 95% of the implementations from a kind of a standard implementation cycle. And then the second is our consulting and managed services practice that's being run by two leaders in the business today. We're ready for the next question operator. Thank you. The next question comes from Matt VanVleet of BTIG. Please go ahead. Yeah, good evening. Thanks for taking the question.
I guess as you look towards 23 and Sean you mentioned maybe projections for slower growth in the consumer lending side of it. I guess from a go-to-market perspective then, are you leaning in on maybe some more of the additive functionality in MeridianLink 1, whether it's around some of the marketing automation or some of the insights products that can help the financial institutions maybe better target. Potential borrowers and things from that nature to maybe drive demand when it's not just.
kind of falling into their laps like if they do was a couple years ago. Thank you for the question and happy Jeff out there. One thing I'd like to know real quick is consumer lending is slowing compared to historic growth levels at our degree that it remains healthy when looking at the economist forecast. Now to your your question of what we can do about it, one thing I love about the Meridian Lake platform is that it's broad enough and flexible enough where we can help our customers in a variety of economic situations. So an example of how we're helping our clients right now is as credit unions look to build up more deposits so that they can lend properly and expand our lending base.
We're bringing together both our engage or marketing automation solution and leveraging that deep connective tissue with our opening solution to help them market to consumers out in the world and grow their base effectively and efficiently. And we will continue to follow plays like that going forward as we continue to invest in our cross-hell motion. Okay very important. Hey Matt.
I just just just to add demand doesn't equal revenue either right so when we when I was talking about revenue, we still see a very healthy demand environment. It's really from that the from the transaction perspective where that's really going to be a macro economic through tie tie back right and so if we start to see an up swing down swing etc. We're exposed at some level to that transaction level demand has been healthy for the last couple quarters we will as Chris mentioned.
As your product expanded and grown and the functionality is on par with some of the competitors, but by bundling it together, they can have a more efficient and cost effective system, and maybe are ripping out older, bigger, more expensive systems at a time when demand is a little lower than it has been. This is Chris. Thank you for the question.
On the open-close element, I think we're yet to see, at least from the Q4 perspective, the benefits of that acquisition from a cross-sell. We completed that late in the year. That said, when we look at those 10, and when I was speaking with those customers, what I consistently heard was the story resonating on how our solution helps bridge functional silos within the FI that are required from a regulatory perspective to create bespoke experiences for consumers. And we have, Nicholas, in the past has talked about our debt optimization feature where we help consumers.
refinance other aspects of their debt wallet to qualify for mortgage loan and or to increase their financial spending capabilities. And the clients are brought into the vision of that we will continue to invest in that connective tissue between our relative loan types to expand that value for their end customers.
refinance other aspects of their debt wallet to qualify for a mortgage loan and or to increase their their financial spending capabilities and The clients are bought into the vision of that we will continue to invest in that connective tissue between our relative loan types to expand that value for their end customers Great. Thanks for taking my questions
Thanks, Matt. The next question comes from Pat Ennis of Credit Suisse. Hi, this is Pat Ennis from Tim Chauda's team. I wanted to ask what Merding Lane gives us for lending volumes in the general macro environment in 2023. I think last quarter you mentioned some unpredictability in lending volumes despite a healthy pipeline. Hey Pat, Sean. I don't, I mean for 2023 the assumption is fairly the same as what we saw in 2022.
Please go ahead. Thank you for the question to appreciate it. Thank you for the disclosures. That's really, really helpful to be in criminal disclosures.
The, you mentioned the record software bookings in the fourth quarter. You know, maybe a little more color on the, you know, why you had a record, you know, maybe the breakout or just some color around, you know, those bookings and then maybe any color on the pipeline, where the pipeline stands.
You mentioned the record software bookings in the fourth quarter. Maybe a little more color on why you had a record, maybe the breakout or just some color around those bookings and then maybe any color on the pipeline, where the pipeline stands, versus say a year ago.
would be helpful. Thank you for the question. This is Chris. I'm looking at it in two ways. One is year-over-year we continue to increase the sales capacity of our organization responsibly. We continue to look at ways for us to attack new markets to feed that ultimate capacity. So I think this is in line with our year-to-year plan. So that's one aspect.
And then the second is- we talked about this- with our investment in the sales in general. it'sreally about building that foundation for scale. So we're already starting to reap the benefits to some of the sales, training and increased onboarding and thus the success working with clients to introduce them to our solution. So that's that's why we're seeing the growth in Q4 S. it's more about quarter over quarter continued execution and that continuous to admit that Sean laid out. And then, as far as looking forward, where are our pipeline? We ue to work on our pipeline in line with supporting the guidance that Sean is.
right? I'd like to see that that maintain and us expand, you know, we'll continue investing heavily in new logo, which then continues to invest that opportunity in customer sales. The thing to step back, our average customer rate leverage is 4.5 out of 13 modules for ML1. So this is a tremendous opportunity for the business and we're investing across the various functional areas to accelerate our ability to execute in that those areas. So that
That includes an R&D perspective improving the connective tissue between loan types to increase the value to our customers as well as what I just talked about from sales training and our focus on platform selling with Marie and Link 1 going forward. So in summary, Marie and Link 1 and bring that all together is tremendously valuable to achieve our customer promise and which will then result in the financials for the business. Thank you. Appreciate it.
includes from an R&D perspective, improving the connective tissue between loan types to increase the value to our customers, as well as what I just talked about from sales training and our focus on platform selling with MariaLink One going forward. So in summary, MariaLink One and bringing that all together is tremendously valuable to achieve our customer promise and which will then result in the financials for the business. Thank you, appreciate it. Thanks, Bob.
Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Andrew Schmidt of City Global Markets. Please go ahead. The established players and where it has changed is over the last three years when money was cheaper and we saw heavy investments and startups. We were starting to see a lot of competitions from a point solution perspective. I'm seeing less and less of that as those organizations look to right size their business.
Yes, is that it will be primarily from affect categories as opposed to cost of goods, just because of the data migration story, the public cloud story, et cetera. And we are fixing services to go faster. So it is an efficiency story.
There are no further questions at this time. I'll turn the conference back to Nicholas for any closing remarks.
Thank you, operator. And I'd like you close by thanking the entire Maria LinkedIn. They're commitment to our customers, partners and each other as partners. I look forward to speaking with you again about what we're accomplishing together here next quarter. Thank you for attending today. We appreciate your support and have a great rest of your week.