Q1 2024 MeridianLink Inc Earnings Call

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Operator: Good afternoon, ladies and gentlemen, and welcome to the MeridianLink First Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode.

Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Marriott didn't Inc. First quarter 2024 earnings conference call. At this time all lines are in listen only mode.

Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 7th, 2024. I would now like to turn the conference over to your first speaker today, Gianna Rotellini. Gianna, please go ahead.

Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time. During this call you acquire immediate assistance. Please press star Zero Friday operator.

Speaker Change: This call is being recorded on Tuesday may seven 2024, I would now like the conference over to your first speaker to D. G. I never tell you Yeah now. Please go ahead.

Gianna Rotellini: Good afternoon, and welcome to MeridianLink's first quarter fiscal year 2024 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are MeridianLink's Chief Executive Officer, Nicolaas Vlok, Chief Financial Officer, Larry Katz, and President Go-To-Market, Chris Maloof.

D. G.: Good afternoon, and welcome to Meridian linked first quarter fiscal year 'twenty 'twenty four earnings call you'll.

Speaker Change: We will be discussing the results announced in our press release issued after the market close today.

Speaker Change: With me today, I'm reading like Chief Executive Officer, Nicholas Block, Chief Financial Officer, Larry Katz, and President go to market Chris Lewis.

Gianna Rotellini: 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 the risks, uncertainties, and other factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and the periodic reports and filings we file from time to time with the Securities and Exchange Commission. 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 statement.

Speaker Change: Why are we begin I'd like to remind you today's conference call will include forward looking statements based on the company's current expectations.

Speaker Change: These forward looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially.

Speaker Change: For a discussion of the risks uncertainties and other factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release, and periodic reports and filings we file from time to time with the Securities and Exchange Commission.

Speaker Change: 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.

Gianna Rotellini: During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find the reconciliation of our GAAP to non-GAAP financial measures included in our press release, which is posted in the Investor Relations section of our website. With that, let me turn the call over to Nicolaas. Thank you, Gianna. Good afternoon, everyone.

Speaker Change: On the call. We will also refer to both GAAP and non-GAAP financial measures you.

Speaker Change: You can find the reconciliation of our GAAP to non-GAAP financial measures included in our press release, which is posted to the Investor Relations section of our website.

Speaker Change: Right.

Speaker Change: With that let me turn the call over to Nicholas Thank you Joanna and good afternoon, everyone.

Nicolaas Vlok: We appreciate you all joining us today. We delivered a solid first quarter against a challenging macro backdrop, achieving gap revenue of $77.8 million for 1% growth year-over-year and adjusted EBITDA of $31.8 million at a 41% margin, exceeding the top end of our guidance. I want to acknowledge that we have continued to grow in the face of significant volume headwinds, including a generational low in mortgage, a multi-year slowdown on auto lending, and macro-related. Specifically, our performance reflects the continued strength of MeridianLink One's end-to-end lending platform and its power to enable our customers to win in the market. Once again this quarter, we signed a robust roster of new logos and cross-s We also continue to expand the capabilities of our platform through innovation.

Nicholas Block: We appreciate you all joining us today.

Nicholas Block: We delivered a solid first quarter against a challenging macro backdrop.

Nicholas Block: GAAP revenue of $77 8 million or 1% growth year over year, and adjusted EBITDA of $31 8 million and a 41% margin.

Nicholas Block: Exceeding the top end of our guidance.

Nicholas Block: I want to acknowledge that we have continued to grow in the face of significant volume headwinds, including a generational low in mortgage.

Nicholas Block: A multiyear slowdown in auto lending and macro related churn.

Nicholas Block: Specifically our performance reflects the continued strength of them, but I didn't think ones into enlink platform and its power to enable our customers to win in the market.

Nicholas Block: Once again this quarter, we signed a robust roster of new logos and cross sell wins that demonstrate the success of our go to market strategy.

Nicholas Block: We also continued to expand the capabilities of our platform through innovation.

Nicholas Block: Well that.

Nicolaas Vlok: Let's move to our Q1 updates that demonstrate how the MeridianLink One platform empowers our customers' growth. First, I'd like to highlight a cross-cell one that shows our ability to increase module penetration within our existing customer base.

Nicholas Block: It's moved out of Q1 updates that demonstrate how the meridian link one platform empowers our customers growth.

Nicholas Block: First I'd like to highlight a cross sell win that shows our ability to increase module penetration within our existing customer base.

Nicolaas Vlok: Our successful land and expand strategy improves customer retention, ultimately increasing customer lifetime value. For example, we want a large financial institution that added MeridianLink mortgage access, mortgage lending, and our debt optimization tool to their existing portfolio of MeridianLink consumers and openings. By connecting mortgage and consumer solutions, our customers can better meet the needs of consumers along their financial journey, capturing a greater share of their debt wallet. This is an example of how embracing the MeridianLink One ecosystem can deepen client relationships and ultimately revolutionize how customers do business.

Nicholas Block: Our successful land and expand strategy improves customer retention ulta.

Nicholas Block: Ultimately increasing customer lifetime value.

Nicholas Block: For example, we won a large financial institution, who added meridian link mortgage axis mortgage lending and our depth optimization tool do their existing portfolio of merida only consumer and opening.

Nicholas Block: By collecting mortgage and consumer solutions.

Nicholas Block: Customers can better meet the needs of consumers along their financial journey capture.

Nicholas Block: Capturing a greater share of their wallet.

Nicholas Block: This is an example of how embracing the meridian link one ecosystem and deepen client relationships and ultimately evolution is how customers do business.

Nicolaas Vlok: In Q1, we also successfully landed new customers who are strategically retooling now to prepare for a market recovery. For example, we welcomed a smaller financial institution on MeridianLink consumer opening and mortgage. They chose MeridianLink One to automate decisioning capabilities and cross-sell loans and deposits without adding brick-and-mortar branches.

Nicholas Block: In Q1, we also successfully landed new customers well strategically retooling now to prepare for a market recovery.

Nicholas Block: For example, with <unk>.

Nicholas Block: Welcomed a smaller financial institution on daily consumer opening and mortgage.

Nicholas Block: They chose one to automate decision capabilities and cross sell loans and deposits without adding brick and mortar branches.

Nicolaas Vlok: Through the sales cycle, the customer gained a strong appreciation for the benefits of a single comprehensive partnership rather than piecing together point solutions from disparate vendors. This illustrates how we are empowering customers to embrace a digital lending strategy and drive growth. Next, I want to spotlight the extraordinary success achieved by Space Coast Credit Union, a top 30 credited union in the U.S. after going live without advanced decisioning capabilities in the quarter.

Nicholas Block: So as the sales cycle the customer gained a strong appreciation of the benefits of a single comprehensive partnership rather than piecing together point solutions from disparate vendors.

Nicholas Block: This illustrates how we are empowering customers to embrace digital lending strategy.

Nicholas Block: <unk> growth.

Nicholas Block: Next I want to spotlight the extra ordinary success achieved by space Coast created Union.

Nicholas Block: 30 credit Union in the U S.

Nicholas Block: After going live without advanced decisioning capabilities in the quarter.

Nicolaas Vlok: For nearly a decade, we've been steadfast partners in supporting SECU's digital maturity initiatives, as they expanded to nine modules tailored to meet the changing lending needs of their members. Since the implementation of advanced decisioning, SECU has instantly decided 13% more loans overall, and an astounding 53% of applicants for credit tiers over 660.

Nicholas Block: For nearly a decade, we've been steadfast partner supporting ACC use digital maturity initiatives as they expanded to nine modules tailored to meet the changing lending needs of their members.

Nicholas Block: Since the implementation of advanced Decisioning.

Nicholas Block: U S instantly decisions, 13% more loans overall.

Nicholas Block: In an astounding, 53% of applicants for credit tiers over 660.

Nicolaas Vlok: With increased automation and efficiency, the customer has optimized staffing and is strategically positioned to sustain long-term growth and remain agile in the competitive landscape. Turning to our latest product updates, we continue to innovate MeridianLink One to drive our customers' digital lending strategy. In the first quarter, we launched MeridianLink Insight Lite, our new interactive data analytics and reporting tool designed to enhance the reporting functionality for MeridianLink consumer and opening customers. Insight Lite enables users to adjust strategies, mitigate risks, and optimize performance with ease.

Nicholas Block: With increased automation and efficiency the customer has optimized staffing and is strategically positioned to sustain long term growth and remain agile in the competitive landscape.

Nicholas Block: Okay.

Nicholas Block: Turning to our latest product updates, we continue to innovate, but I didn't like want to drive our customers' digital lending strategy in.

Nicholas Block: In the first quarter, we launched Meridian link inside life.

Nicholas Block: New interactive data analytics and reporting tool designed to enhance the reporting functionality for or dealing consumer and opening customers.

Nicholas Block: Inside like enables users to adjust that allergies mitigate risks and optimize performance with ease.

Nicolaas Vlok: As customers embrace data-driven decision-making through Insight Lite, there is a clear upgrade path to our more comprehensive business intelligence solution, MeridianLink Insight. This showcases how we are paving the way for customers to accelerate the digital progression, which in turn drives growth for MeridianLink. Ending on a highlight of customer engagement, we enjoyed spending time together in Nashville last week with 1,400 attendees, a record number at MeridianLink Live, our annual conference

Nicholas Block: As customers embrace data driven decision, making through inside light.

Nicholas Block: There is a clear upgrade path to our more comprehensive business intelligence solution Meridian link insights.

Nicholas Block: This showcases how we are paving the way for customers to accelerate their digital progression, which in turn drives growth for malaria link.

Nicholas Block: And you're going to highlight of customer engagement.

Nicolaas Vlok: Enjoyed spending time together in Nashville last week with 1400 attendees a record at Meridian linked life our annual conference.

Nicolaas Vlok: Our customers were excited about our digital progression model, outlining a framework to accelerate growth and deepen consumer connection. We are proud of hosting our most successful event to date, leading directly to significant pipeline creations for the new logo, cross-cell, and partner integration. Before I hand over to Larry, I want to emphasize that MeridianLink continues to outperform even in the face of challenging market conditions, all thanks to the exceptional ability of our team to drive results. We expect that macro headwinds will persist throughout this year, and we will continue executing on what's in our control.

Nicholas Block: Customers were excited about our digital progression model outlining a framework to accelerate growth and deepen consumer connections.

Nicholas Block: We are proud of hosting on most successful event to date.

Nicholas Block: Leading directly to significant pipeline creation for new logo cross sell and partner integrations.

Speaker Change: Before I hand, it over to Larry I want to emphasize that meridian linked continues to outperform even in the face of challenging market conditions. All thanks to the exceptional ability of our team to drive results.

Nicolaas Vlok: We expect that macro headwinds will persist throughout this year and we will continue executing on what's in our control.

Nicolaas Vlok: With the Solid Foundation, we have invested, and bolstered by a healthy balance sheet and sound capital allocation strategy, we are well positioned to capitalize on the opportunities that lie ahead and deliver value back to shareholders. Finally, I'd like to close by highlighting a strategic addition to the leadership team to support our growth acceleration, namely our new CFO, Larry Katz. Larry brings a strong global track record of financial leadership with demonstrated success leading transformation at scale in financial services, SaaS, and private equity.

Larry Katz: With the solid foundation, we have invested in <unk>.

Larry: Bolstered by a healthy balance sheet and sound capital allocation strategy, we are well positioned to capitalize on the opportunities that lie ahead and deliver value back to shareholders.

Nicolaas Vlok: His experience spans more than 25 years at companies including Genesys and JPMorgan Chase. He served in executive leadership positions at JPMorgan Chase for approximately 15 years, including in the mortgage and consumer lending business, and as CFO of various divisions, while at JPMorgan Chase Genesis, a $2 billion annual revenue business. He led a highly successful transformation from on-premises to the cloud and completed numerous successful acquisitions. What excites me is that Larry is also a seasoned M&A veteran, and I value his experience and industry knowledge as we continue to build MeridianLink. Larry and I share the same vision that MeridianLink has significant untapped potential for expansion and growth, and I'm excited to partner together to propel the company forward to that next level of success. Will that?

Larry: Finally, I'd like to close by highlighting a strategic addition to the leadership team to support our growth acceleration, namely our new CFO Larry Katz.

Nicolaas Vlok: That he brings a strong global track record of financial leadership with demonstrated success, leading transformation at scale and financial services SaaS and private equity.

Nicolaas Vlok: His experience spans more than 25 years at companies, including Genesis and JP Morgan Chase.

Nicolaas Vlok: He served in executive leadership positions at JP Morgan Chase with approximately 15 years, including in mortgage and consumer lending businesses and as CFO of various divisions.

Nicolaas Vlok: While CFO Genesis, a $2 billion annual revenue business. He led our highly successful transformation from on Prem to the cloud and completed numerous successful acquisitions.

Nicolaas Vlok: What excites me is that Larry is also a seasoned M&A bathroom.

Nicolaas Vlok: The value of his experience and industry knowledge as we continued to both Meridian link.

Nicholas Block: Larry and I share the same vision that meridian linked has significant untapped potential for expansion and growth.

Nicolaas Vlok: I'm excited to partner together to propel the company forward to that next level of success.

Speaker Change: Well that.

Nicolaas Vlok: I'm pleased to turn the call over to Larry to talk about his experience and then review our financial results and guidance.

Nicolaas Vlok: I'm pleased to turn the call over to Larry to talk about his experience and then review our financial results and guidance.

Larry Katz: Thanks, Nikolaas. I'm thrilled to be here and to help lead the next leg of MeridianLink's growth and innovation. As Nikolaas mentioned, I've got years of relevant experience in consumer lending, fintech, and SaaS businesses. I've been around the block, and at every stop, I have helped companies deliver durable growth at scale while building exceptional customer experiences personally. I enjoy helping build companies the right way. Innovative companies like MeridianLink that deliver unique and valuable solutions for customers that are financially disciplined, that allocate capital prudently, and that have high-performance teams who like to win.

Larry: Thanks, Nicholas I'm thrilled to be here and to help lead the next leg of meridian links growth and innovation.

Larry Katz: As Nicolas mentioned I've got years of relevant experience and consumer lending Fintech and SaaS businesses.

Larry Katz: I've been around the block and at every stop have helped companies deliver durable growth at scale, while building exceptional customer experiences.

Larry Katz: Personally.

Larry Katz: I enjoy helping build the company is the right way innovative companies like Meridian bank that deliver unique and valuable solutions for customers that are financially disciplined and allocate capital prudently and to have high performing teams who'd like to win.

Larry Katz: There is a lot to like about the MeridianLink story today, and I chose to join because of my knowledge and experience in this market. First, MeridianLink has a unique value proposition as the lending platform of choice for credit unions and community banks.

Larry Katz: There is a lot to like about the meridian like story today and I chose to join because of my knowledge and experience in this market.

Larry Katz: First <unk> has a unique value proposition as the lending platform of choice for credit unions and community banks.

Larry Katz: I know the power, value, and stickiness of these enterprise platforms from my experience at J.P. Morgan and Genesys. I've implemented point-of-sale, origination, and servicing platforms for mortgage and consumer lending, and I know that financial institutions design their businesses around these platforms. Our platforms don't just power the business. They are the business.

Larry Katz: I know the power value and stickiness of these enterprise platforms for my experience at J P Morgan and Genesis.

Larry Katz: <unk> implemented point of sale origination and servicing platforms and mortgage and consumer lending and I know the financial institutions design their businesses around these platforms are platforms don't just power of the business. They are of the business. We are the leading platform and a growing resilient market segment, where meridian links digital.

Larry Katz: We are the leading platform in a growing, resilient market segment where MeridianLink's digital capabilities enable our customers to compete and grow. Second, the fundamentals of this business are strong, with healthy retention rates, strong margins, and robust cash generation. This is a durable business with recurring revenue insulated by contractual minimums and benefiting from macro tailwinds of digitalization. It is led by a smart and talented management team that executes with discipline through market cycles.

Larry Katz: Abilities enable our customers to compete and grow.

Larry Katz: Second the fundamentals of this business are strong with healthy retention rates strong margins and robust cash generation.

Larry Katz: <unk> is a durable business with recurring revenue insulated by contractual amount, a modest and benefiting from macro tailwind of digitalization.

Larry Katz: Led by a smart and talented management team that has executed with discipline through market cycles. They built a great business and I am excited to partner with them for this next chapter.

Larry Katz: They built a great business, and I'm excited to partner with them for this next chapter. Third, it's clear to me that we are well positioned to accelerate growth. With the power of MeridianLink One, we have a significant expansion opportunity with our current customers and partner relationships, as well as new logo acquisition opportunities.

Larry Katz: Third it is clear to me that we are well positioned to accelerate growth with the power of viridian like one we have a significant expansion play with our current customers and partner relationships as well as new logo acquisition opportunities. We're just beginning to see the return on our investment in our go to market services and customer success teams.

Larry Katz: We're just beginning to see the return on our investment in our go-to-market services and customer success team, which will generate increased demand and accelerate time to revenue. With our healthy pipeline, bookings, and activations, we are becoming a coiled spring that will release as volumes recover, driving accelerated revenue growth. As I enter as CFO at MeridianLink, I plan to focus on three key areas. First, I will focus on delivering against our operating priorities, bringing rigor, discipline, data, and analytics to measure progress and inform decisions.

Larry Katz: Which will generate increased demand and accelerate time to revenue.

Larry Katz: With our healthy pipeline bookings and Activations, we are becoming a coiled spring that will release as volumes recover driving accelerated revenue growth.

Larry Katz: I'll focus on systems, processes, controls, and talent to support our scale and growth. And I'll hone our short and medium-term investment priorities to articulate a long-term growth plan, including milestones over a three-plus year period. Additionally, I will outline a disciplined capital allocation framework.

Larry Katz: As I enter as CFO at Meridian Lake I plan to focus on three key areas.

Larry Katz: One I will focus on delivering against our operating priorities, bringing rigor discipline data and analytics to measure progress and informed decisions.

Larry Katz: Focus on systems processes controls and talent to support our scale and growth.

Larry Katz: And I'll phone or short and medium term investment priorities to articulate a long term growth plan, including milestones over a three plus year period.

Larry Katz: Q I will outline a disciplined capital allocation framework our.

Larry Katz: Our priorities will be, first, investing in organic growth in areas such as go-to-market, R&D, and services, especially when those investments have high ROIs. Second, inorganic growth via targeted strategic accretive M&A. And third, repurchasing our own shares when they trade at a discount to intrinsic value.

Speaker Change: Our priorities will be.

Larry Katz: First investing in organic growth in areas, such as go to market R&D and services, especially when those investments have high rois.

Larry Katz: Second inorganic growth via targeted strategic accretive M&A.

Larry Katz: And third repurchasing our own shares when trading at a discount to intrinsic value.

Larry Katz: We expect that we will be able to do all three with our recurring revenue, free cash flow generation, and balance sheet capacity. My third priority will be to help our investors better understand the performance of our business and the levers of our growth, which include our revenue growth algorithm. I'm a big believer in transparency, and I'm committed to helping our investors understand what their financial expectations could be for our business. Turning now to hours.

Larry Katz: We expect that we will be able to do all three with our recurring revenue free cash flow generation and balance sheet capacity.

Larry Katz: Our third priority will be to help our investors better understand performance of our business and our levers of growth which include our revenue growth algorithm.

Larry Katz: I'm, a big believer in transparency and I'm committed to helping our investors understand what their financial expectations could be for our business.

Larry Katz: Turning now to our results.

Larry Katz: MeridianLink performed well in the face of a shifting macroeconomic environment. In the quarter, we delivered on our top line by executing our platform strategy and beat on our EBITDA guidance. In Q1, we generated total revenue of $77.8 million, up 1% year over year, meeting the high end of our revenue guide. Adjusted EBITDA was $31.8 million, a 41% margin, up 27% year-on-year, and exceeded our EBITDA guide. Revenue growth was driven by higher services and other revenue, offset by lower subscription revenue.

Larry Katz: <unk> performed well in the face of a shifting macro economic environment and.

Larry Katz: In the quarter, we delivered on our top line by executing our platform strategy and beat our EBITDA guidance.

Larry Katz: In Q1, we generated total revenue of $77 8 million up 1% year over year meeting the high end of our revenue guidance.

Larry Katz: Adjusted EBITDA was $31 8 million or 41% margin up 27% year on year and exceeded our EBITDA guidance.

Larry Katz: Revenue growth was driven by higher services and other revenue offset by lower subscription revenue.

Larry Katz: Subscription revenue declined year over year due to lower volumes offset by ACB release from both existing and new customers. In the face of macro headwinds, a generational low in mortgage industry originations, and softer auto lending volumes, we beat our adjusted EBITDA guidance by managing our cost base and executing with discipline. We saw healthy demand in the quarter, resulting in pipeline growth and strong bookkeeping.

Larry Katz: Description revenue declined year over year due to lower volumes offset by ACP release from both existing and new customers.

Larry Katz: In the face of macro headwinds, a generational low and mortgage industry originations and softer auto lending volumes.

Larry Katz: Our adjusted EBITDA guidance by managing our cost base and executing with discipline.

Larry Katz: We saw healthy demand in the quarter, resulting in pipeline growth and strong bookings.

Larry Katz: In this challenging macro, we are controlling what we can control and proactively investing for wind volumes to recover, breaking down revenue and starting with software solutions. Our total lending software revenue grew 5% year over year and accounted for nearly 78% of revenue. Non-mortgage lending revenue grew 6% year-over-year and accounted for 89% of lending software revenue. This growth was attributable to solid ACV release from existing and new customers, offset by lower volume. Autovolumes, our largest consumer loan category, are improving sequentially but remain down year over year. Pre-owned volumes remain challenged due to the softness in used car inventory and aggressive dealer financing alternatives.

Larry Katz: In this challenging macro we are controlling what we can control and proactively investing for when volumes recover.

Larry Katz: Breaking down revenue and starting with software solutions.

Larry Katz: Our total lending software revenue grew 5% year over year and accounted for nearly 78% of revenue.

Larry Katz: Non mortgage lending revenue grew 6% year over year and accounted for 89% of lending software revenue.

Larry Katz: This growth was attributable to solid ACB released from existing and new customers offset by lower volumes.

Larry Katz: Auto volumes, our largest consumer loan category are improving sequentially, but remained down year over year.

Larry Katz: Pre owned volumes remained challenged due to the softness in used car inventory and aggressive dealer financing alternatives.

Larry Katz: Mortgage-related revenue within lending software solutions declined 1% year over year and accounted for the remaining 11% of lending software revenue. This quarter, mortgage volumes were up year over year, but it will take time for volumes to push our customers above their committed minimums. In a smaller part of our business, mortgage industry volumes are at generational lows, with refinancing volumes at the lowest level since 2000.

Larry Katz: Mortgage related revenue within lending software solutions declined 1% year over year and accounted for the remaining 11% of lending software revenue.

Larry Katz: This quarter mortgage volumes were up year over year, but it will take time for volumes to push our customers above their committed minimums.

Larry Katz: So a smaller part of our business mortgage industry volumes are at generational lows with refinancing volumes at the lowest level since 2000.

Larry Katz: Turning to data verification software solutions, revenue declined 12% year over year and accounted for 22% of total revenue. This decline was attributable to a 17% decrease in mortgage-related revenue, which represented 58% of total data verification software revenue in Q1. This decline in mortgage-related data verification revenue was driven by lower volumes, which were impacted by the downsell of a single large customer.

Larry Katz: Turning to data verification software solutions revenue declined 12% year over year and accounted for 22% of total revenue.

Larry Katz: This decline was attributable to a 17% decrease in mortgage related revenue, which represented 58% of total data verification software revenue in Q1.

Larry Katz: The decline in mortgage related data verification revenue was driven by lower volumes, which were impacted by down south of a single large customer.

Larry Katz: In total, mortgage-related revenue was 21% of total MeridianLink revenue in the first quarter, down three points from the year-ago quarter. Focusing on Profitability. Gap gross margin was 66% in Q1. On a non-gap basis, adjusted gross margin was 74%, nearly 300 basis points of improvement in operating leverage over the year, driven by increased productivity of our services. For operating expenses, sales and marketing expenses were $10.5 million, a 28% increase year-over-year on a gap basis. On a non-GAAP basis, sales and marketing was $9.2 million, up 16%.

Larry Katz: In total mortgage related revenue was 21% of total <unk> revenue in the first quarter down three points from the year ago quarter.

Larry Katz: Focusing on profitability.

Larry Katz: GAAP gross margin was 66% in Q1.

Larry Katz: On a non-GAAP basis, adjusted gross margin was 74% nearly 300 basis points of improvement in operating leverage year over year, driven by increased productivity of our services team.

Larry Katz: Our operating expenses sales and marketing expense was $10 5 million or 28% increase year over year on a GAAP basis on a non-GAAP basis sales and marketing was $9 2 million up 16%. This increase is due to higher variable compensation costs and our investment in our go to market team.

Larry Katz: This increase is due to higher variable compensation costs and our investment in our go-to-market strategy. R&D expense was $9.5 million and declined 31% year-over-year on a gap basis. On a non-GAP basis, R&D was $7.9 million and declined 34% year-over-year, reflecting continued cost discipline and the roll-off of spend for completed technology projects, such as the migration to the public cloud. G&A expense was $25.2 million, up 12% year-over-year on a gap basis. On a non-gap basis, G&A declined 7% to $9.5 million, excluding non-recurring items such as secondary offering costs in Q1.

Larry Katz: R&D expense was $9 5 million and declined 31% year over year on a GAAP basis.

Larry Katz: On a non-GAAP basis, R&D was $7 9 million and declined 34% year over year, reflecting continued cost discipline and the roll off of spend for completed technology projects, such as the migration to the public cloud.

Larry Katz: G&A expense was $25 2 million up 12% year over year on a GAAP basis.

Larry Katz: On a non-GAAP basis, G&A declined 7% to $9 5 million, excluding nonrecurring items, such as the secondary offering costs in Q1.

Larry Katz: Moving to overall operating performance, GAAP operating income was $3.4 million, and non-GAAP operating income was $16.3 million. On a gap basis, net loss was negative 5.3 million for a negative 7% margin.

Larry Katz: Moving to overall operating performance GAAP operating income was $3 4 million and non-GAAP operating income was $16 3 million.

Larry Katz: On a GAAP basis, net loss was negative $5 3 million or negative 7% margin.

Larry Katz: And on a non-GAAP basis, Adjusted EBITDA was $31.8 million, a 41% margin. This represented an 850 basis point improvement in operating leverage year over year and reflects our continued cost discipline while strategically investing and growing. Moving to the balance sheet and cash flow statement, we ended the first quarter with $52.3 million in cash and cash equivalents, a decrease of $18.2 million from year-end. This decline was driven by $44 million of stock repurchases in the quarter.

Larry Katz: And on a non-GAAP basis, adjusted EBITDA was $31 8 million or 41% margin.

Larry Katz: This represented an 850 basis point improvement in operating leverage year over year and reflects our continued cost discipline, while strategically investing in growth.

Larry Katz: Now pivoting to the balance sheet and cash flow statement.

Larry Katz: We ended the first quarter with $52 3 million in cash and cash equivalents a decrease of $18 2 million from year end. This decline was driven by 44 million of stock repurchases in the quarter.

Larry Katz: Cash flow from operations was $29 million, or 37% of revenue, and free cash flow was $27.1 million, or 35% of revenue. I'll now pivot to guidance for Q2 and update guidance for the full year 2024. While the consumer seems to be holding up, we remain cautious about the uncertain macro environment with a higher for longer rate out. We continue to grow our non-mortgage-related lending revenue, primarily through ACV release. And while volumes are improving sequentially, we expect that revenue growth attributable to volumes will be lighter than previously anticipated.

Larry Katz: Cash flow from operations was $29 million or 37% of revenue and free cash flow was $27 1 million or 35% of revenue.

Larry Katz: I will now pivot to guidance for Q2 and update guidance for the full year 2024.

Larry Katz: While the consumer seems to be holding up we remain cautious about the uncertain macro environment with a higher for longer rate outlook. We continue to grow our non mortgage related lending revenue primarily through HCV release, and while volumes are improving sequentially. We expect that revenue growth attributable to volumes will be lighter than previously anticipated.

Larry Katz: Within this macro, we are focused on the things within our control, including disciplined cost management with a focus on profitability in preparation for when volumes return. We continue to prioritize winning new logos and cross-sell mandates, accelerating ACB release, and innovating MeridianLink One to meet evolving consumer lending needs.

Larry Katz: Within this macro we are focused on the things within our control, including disciplined cost management with a focus on profitability and preparation for when volumes return.

Larry Katz: We continue to prioritize winning new logos and cross sell mandates accelerating ACB release, and innovating Meridian link one to meet evolving consumer lending needs.

Larry Katz: With that, I'll share our updated guidance. For the second quarter, estimated total revenue is expected to be between $76 million and $79 million, compared to $75.4 million for the same period in 2023. This represents an estimated year-over-year change of 1-5%, after adjusting Q2'23 for a one-time reduction in revenue due to the previously disclosed commercial dispute.

Larry Katz: With that I will share our updated guidance.

Larry Katz: For the second quarter estimated total revenue is expected to be between $76 million and $79 million compared to $75 4 million for the same period in 2023.

Larry Katz: This represents an estimated year over year change of 1% to 5% adjust.

Larry Katz: Adjusting Q2, 'twenty three for a onetime reduction in revenue due to the previously disclosed commercial dispute.

Larry Katz: This represents an estimated year-over-year change of negative 2% to positive 2%. For the full year 2024, we expect total revenue to be between $311 million and $319 million, compared to $303.6 million for the full year 2023. This represents an estimated increase of 2-5% year-over-year. We expect the mortgage market to contribute approximately 20% of revenue for the second quarter and full year 2024, to provide more color around the drivers of our total revenue.

Larry Katz: This represents an estimated year over year change of negative 2% to positive 2%.

Larry Katz: For the full year 2024, we expect total revenue to be between $311 million and $319 million compared to $303 6 million for the full year of 2023. This represents an estimated increase of 2% to 5% year over year.

Larry Katz: We expect the mortgage market to contribute approximately 20% of revenue for the second quarter and full year 2024.

Larry Katz: To provide more color around the drivers of our total revenue.

Larry Katz: Our mortgage-related revenue guidance includes declining year-over-year revenue despite improving volumes, as it will take time for the recovery in volumes to push our customers above their committed minimum. For our non-mortgage-related data verification software solutions, we expect to return to modest year-over-year growth as the employment screening market reacts to job openings and labor turnover. Non-mortgage lending revenue is anticipated to gradually improve year-over-year across loan

Larry Katz: Our mortgage related revenue guidance includes declining year over year revenue, despite improving volumes as it will take time for the recovery in volumes to push our customers above their committed minimums.

Larry Katz: For our non mortgage related data verification software solutions, we expect to return to modest year over year growth as the employment screening market reacts to job openings and labor turnover.

Larry Katz: Non mortgage lending revenue is anticipated to gradually improve year over year across non types. This is driven primarily by ACB release, and some uplift from improving volumes in line with the gradual recovery that industry sources are forecasting.

Larry Katz: This is driven primarily by ACV release and some uplift from improving volumes, in line with the gradual recovery that industry sources are forecasting. Now, we are focusing on our adjusted EBITDA guide. On a non-gap basis, TechEd's quarterly estimated adjusted EBITDA is expected to be between $29 million and $32 million, representing adjusted EBITDA margins of approximately 39% at the midpoint. For the full year 2024, we continue to expect our adjusted EBITDA range to be between $123 million and $130 million, representing adjusted EBITDA margins of approximately 40% at the midpoint.

Larry Katz: Now focusing on our adjusted EBITDA Guide.

Larry Katz: On a non-GAAP basis second quarter estimated adjusted EBITDA is expected to be between $29 million and $32 million, representing adjusted EBITDA margins of approximately 39% at the midpoint.

Larry Katz: For the full year 2024, we continue to expect our adjusted EBITDA range to be between $123 million and $130 million, representing adjusted EBITDA margins of approximately 40% at the midpoint.

Larry Katz: This adjusted EBITDA guide on lower revenue effectively raises our expected adjusted EBITDA margin and signals our confidence and focus on execution and profitability. To wrap up, I'd like to reiterate how excited I am to join this team and business to chart the next leg of MeridianLink's growth. With that, Nikolaas, Chris, and I are happy to take any of your questions, and I'll turn it over to the operator.

Larry Katz: This adjusted EBITDA guide on lower revenue effectively raises our expected adjusted EBITDA margin and signals, our confidence and focus on execution and profitability.

Larry Katz: To wrap up I'd like to reiterate how excited I am to join this team and business to chart. The next leg of Meridian. Thanks growth.

Larry Katz: With that Nicholas Chris and I are happy to take any of your questions and I'll turn it over to the operator.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any number.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press star followed by the number one on your Touchtone phone.

Operator: We'll hear from that you had has been re.

Operator: Should you wish to claim from the pooling process. Please press star followed by the number too.

Operator: You are using a speaker phone please lift the handset before pressing.

Operator: One moment, please, for your first question. Your first question comes from the line of Koji Ikeda from Bank of America. Please go ahead. Hey guys, thanks for taking the question.

Operator: One moment. Please for your first question.

Operator: Your first question comes from the line of Koji Ikeda from Bank of America. Please go ahead.

Koji Ikeda: Hey, guys. Thanks for taking the questions. Hi, Larry. Nice to meet you on the call. Looking forward to working with you.

Koji Ikeda: Hey, guys. Thanks for taking the questions Hi, Larry Nice to meet you on the call looking forward to working with you.

Koji Ikeda: I had a question around minimum contract values and just thinking about all the contracts in aggregate. Is there a way to think about... How far down or below the minimum contract values, you know, in aggregate, the customers are? And, you know, where I'm going with this is, how much do overall volumes need to be made up before minimum contract thresholds are achieved?

Speaker Change: Had a question.

Koji Ikeda: Around the minimum contract values and just thinking about all the contracts in aggregate.

Koji Ikeda: Is there a way to think about.

Koji Ikeda: How far down or below the minimum contract values in aggregate the customers are in.

Koji Ikeda: Where I'm going with this is how much do overall volumes need to be made up.

Koji Ikeda: Before minimum contract thresholds Archie.

Larry Katz: Hey, Koji, it's Larry. Nice to meet you as well. I look forward to working with you. [inaudible] Breaking down consumer versus mortgage on the mortgage side, as we've talked about in the past, many of our contracts are well below their contractual minimums and that

Koji Ikeda: Hey, Koji, it's Larry and nice to meet you as well and look forward to working with you.

Larry Katz: So.

Larry Katz: Breaking down consumer versus mortgage on the mortgage side as we've talked about in the past.

Larry Katz: We are many of our contracts are well below there.

Larry Katz: Our contractual minimums and and that's why we're seeing even though mortgage volumes are starting to recover it's not printing to revenue in the quarter. So it's going to take some time I don't know crystal ball when that'll happen, but it's going to take some time.

Larry Katz: From my days in mortgage as I'm sure you know that.

Larry Katz: When the mortgage market comes back it tends to it tends to move quickly. So we can move through those far as pretty quickly, but it's going to take some time until that mortgage market comes back on the consumer lending side substantial part of our of our contract base.

Koji Ikeda: As above the.

Larry Katz: Moms today and.

Larry Katz: A good chunk is relatively close to those minimums and so.

Larry Katz: We see we see more.

Larry Katz: Yeah.

Larry Katz: As volumes are returning for example in auto those volumes are passing through and into.

Larry Katz: Our revenue and would expect that to continue as volumes recover.

Speaker Change: Got it no. Thank you Larry and just a follow up here.

Larry Katz: Thinking about the new logos signing up call it within the last six months.

Speaker Change: Those contract commitments for those new logos compare to say contract signed a year ago are they roughly the same roughly smaller I mean any way to think about the commitments that are embedded with the new logos signed recently thanks guys.

Larry Katz: Hey, this is Chris over the last year, they're roughly the same.

Larry Katz: And they can really vary institution to institution based on how much how aggressive they want to be in terms of their commitments versus theyre out price. So we see a decent bit of variability.

Larry Katz: Which has remained consistent.

Speaker Change: Thank you.

Larry Katz: Thank you and your next question comes from the line of Nick Campbell from UBS. Please go ahead.

Larry Katz: Yeah.

Speaker Change: Hey, guys. Congrats on the strong results and thanks for taking my question My first one for Nicolas.

Koji Ikeda: I was hoping you could provide additional color on the conversations you're having with customers here most recently.

Larry Katz: <unk> customer conference.

Larry Katz: <unk> of their bank it spending plans and more specifically on lending and also just how your sales pipeline is looking.

Larry Katz: Now relative to it was last year on the back of your customer conference.

Koji Ikeda: Yeah, Hello, there and thank you for the question first of all from a customer conversation standpoint, I don't feel like we are having different conversations with customers at a user event.

Larry Katz: Newly made then kind of separate executive briefings and meetings and those conversations up pretty positive folks are leaning into retooling folks are very interested and meridian links roadmap.

Speaker Change: We did spend some time at the user forums speaking about a digital penetration model, which I'm going to ask Chris Maloof, that's on the call yet to take that on in a little bit of a knife asset demand, but it's something that our customers are really excited about we feel it will help them on the curve.

Larry Katz: Achieving more digital maturity on our platform, but also in the industry as a general and a lot of conversation took place around that.

Larry Katz: Another theme that we had.

Larry Katz: Yes.

Larry Katz: Quite a bit of interaction with the user forum was AI.

Larry Katz: We've also had some keynote folks and showed.

Speaker Change: Product functionality that was pretty exciting to the customer base, but generally speaking I would say folks are starting to kind of look past 'twenty four.

Larry Katz: One of the themes, we heard back from some of the clients would be.

Larry Katz: Still a fairly constrained environment from a liquidity and deposit perspective, but hopefully folks have seen 25 being a more positive here.

Larry Katz: Specifically on the credit Union side I would highlight so because maybe you can speak to the digital progression model, which was quite a highlight for us that these are four of them.

Koji Ikeda: Yes, Thanks, Nicholas a core part of our cross sell success and how we position ourselves against competitors as how ml one as a whole is differentiated than its point solutions or load so as the.

Larry Katz: The central approach, we took to our latest user farmers, we moved away from talking about <unk>.

Larry Katz: Various specific use cases around credit cards or mortgage et cetera.

Larry Katz: But where are you in your specific digital transformation process and then how can our spar solution, helping them moving along that line. So an example could be we'll talk to many different institutions that are.

Larry Katz: Sydney is it 10% of their deposit at Salt life, they want to streamline that.

Larry Katz: That's one engagement, we can do and then we went to another institution like the one that was highlighted at <unk>, where they are looking to enhance their auto decisioning right price. So that would be on the board side of that curve.

Larry Katz: What's great about this is I think about the business long term.

Larry Katz: As many of these customers where this industry still has five to 10 years left of digital and transformation lack there is a lot of the processes out there that are still built for the in person and they're reflected digitally as opposed to being separate but equal and as we move them to being separate but equal where were we will require significant.

Larry Katz: <unk> investment additional technologies.

Larry Katz: And their people as well as investment in our technology.

Larry Katz: Yes.

Speaker Change: Thanks for all the additional color that's very helpful.

Larry Katz: Then my follow up for Larry would be helpful. If you could just provide some additional detail on the guidance assumptions for the remainder of the year for the consumer lending business excluding mortgage.

Larry Katz: The various loan types, such as like auto personal loans credit cards like what are you thinking from a volume perspective relative to Q1.

Larry Katz: Hey, Nik nice to meet you and thanks for the question.

Larry Katz: No.

Koji Ikeda: In general we are looking at.

Larry Katz: Cautiously optimistic in the second half.

Larry Katz: We are given the rate environment.

Larry Katz: We have pulled back on some of our assumptions in the second half from our prior guidance and.

Larry Katz: Just to give you a little bit of color on it and we're referencing and industry sources and all the rest here, but looking at our own business and where our.

Speaker Change: And how our segments are performing on the auto side, we are expecting some.

Larry Katz: A modest recovery in the in the back half.

Larry Katz: In line with in line with industry sources.

Larry Katz: The used market, which as you know represents the majority of our consumer lending business.

Larry Katz: As that begins to recover we will see some pickup in the back half.

Larry Katz: And similarly in other.

Larry Katz: In other.

Speaker Change: And other non asset backed loan types of account, our pant as well <unk> had a relatively soft first quarter, just given the comps to last year and we're expecting some pickup in that in the back half and other personal loans credit cards have been remained pretty healthy and well and will be stable to positive through the back half, but just generally I'd say.

Larry Katz: It's pretty modest modest recovery, given our outlook our rate outlook.

Speaker Change: Got it thanks, a lot for all the pillar.

Larry Katz: Thank you and as a reminder, if you wish to ask a question. Please press star one.

Speaker Change: And your next question comes from the line of Ed <unk> from William Blair. Please go ahead.

Speaker Change: Hey, guys. Thanks for taking our questions if I could just ask one.

Larry Katz: ACD release, I mean, you guys have talked a lot about accelerating implementation and clearly its easier versus the operating results now, but could you kind of just talk about where we are in that journey and how that's kind of been trending.

Speaker Change: Yes, its Larry again, thanks for the question so.

Larry Katz: Questions on ACB release.

Larry Katz: Look we've talked a lot.

Larry Katz: Prior quarters around.

Larry Katz: Around acceleration of our of our HCV released and we are seeing that in the quarter right. The story on a quarter is that ACB.

Speaker Change: ACB released both new and cross sell that release is accelerating and thats offset by volumes and so you don't see it as much in the numbers, but that's that's kind of the underlying trend is really part of the coiled spring story that we've talked about.

Speaker Change: On a period on period basis, ACB is up and Thats a benefit I mean, there are couple of things going on there one is.

Larry Katz: As our bookings have go to market has.

Larry Katz: Hum.

Larry Katz: A bigger pipeline that drives ACB release services investment that has increased our time to revenue as we've talked about in prior quarters, but also there's a mix component here.

Speaker Change: Where new implementations can take longer to implement and the cross sell is a quicker implemented and as we've talked about cross sell is a big chunk of our business and so there is a mix element here as well that drives ACB related so.

Larry Katz: We are seeing it in the numbers it doesn't show up as much just given the macro headwinds that we're facing.

Koji Ikeda: But it is baked into the numbers.

Speaker Change: Perfect. Thanks for that.

Larry Katz: And if I could just ask on meridian like access could you kind of just talk about.

Larry Katz: How that product has kind of trended relative to your initial expectations. The last couple of months.

Larry Katz: The offering is differentiated versus some of your offerings.

Koji Ikeda: Yes. Thanks for the question. So we released this product in H two of last year.

Larry Katz: The number we talked about last quarter was five zero.

Speaker Change: We sold 40 to 50 of them. So that's in line with expectations as we continue to mature the product now as far as differentiation is concerned is when we think about MLR one from a data perspective, the more apps specs of the platform you have the better the data youre going to have on how effective each part of your organization is in drive.

Larry Katz: Originations and that's the central parts of the insights and data product that we've had continued success selling as well.

Larry Katz: So if you were to leverage one of our first which is great and we enable our customers to extend our solution with third parties. As we highlight you wouldn't have some of those extra features that allow you to optimize your business for the different channel sure operator.

Larry Katz: Okay.

Speaker Change: Great. Thanks very much.

Larry Katz: Thank you and again, if you wish to ask a question. Please press star one.

Larry Katz: Next question comes from the line of Alex Sklar from Raymond James. Please go ahead.

Speaker Change: Great. Thank you.

Larry Katz: Okay.

Koji Ikeda: And nice to meet you, Larry as well sorry jumping between calls here.

Speaker Change: Just the first one for you I'm just kind of wanted to see I know, it's fairly new still but the next couple of months where are you most focused on.

Larry Katz: Specifically is it.

Speaker Change: Related to kind of the accelerating growth comments you made aside from some of the macro headwinds easing.

Larry Katz: It's nice to meet you.

Larry Katz: Look I think focused on.

Larry Katz: We're focused on controlling what we can control right.

Larry Katz: Given the macro and those are.

Larry Katz: Around HCV release around time to revenue around.

Larry Katz: Bookings and pipeline release around.

Larry Katz: Focused on.

Larry Katz: Understanding churn and managing churn and then on pricing as well kind of all the key elements of value creation, and then and as I mentioned in the script I'll show on turning up the <unk>.

Larry Katz: Inorganic and organic efforts as well, we think there's a real opportunity in the market right now given.

Larry Katz: Valuations and liquidity that is really.

Larry Katz: We're well positioned there as well so.

Larry Katz: Our given our recurring revenue and free cash flow I think we've got a meaningful opportunity there too.

Larry Katz: To add on when we see product market fit and when we see.

Larry Katz: And when it's accretive and when it makes sense for us. So that's an area as well that are spending a lot of time in Oakland and will be over the next quarter.

Speaker Change: Okay, great color on that.

Larry Katz: One follow up for you Nicholas.

Speaker Change: Just in terms of the customer space coast that took the automated decisioning and implemented is now lives can you just talk about if there's something unique from that customer's perspective in terms of being ready to adopt first your average customer base I'm just kind of curious if theres been any change in terms of the overall appetite for your customers and prospects.

Koji Ikeda: Similarly adopt that automated decisioning that you've been talking about for a while now thanks.

Larry Katz: Yes. This is Chris I'll take that one.

Larry Katz: When you think it goes all goes back to the digital progression, where they are within that journey I would say that more and more organizations are investing to move up that course, and what I mean by that is it's all about how are you competing for consumers and <unk>.

Larry Katz: Core measure about competing for consumers as your instant decisioning rate and that's what our advanced Decisioning.

Larry Katz: Tool allows our financial institutions to do some more specific way.

Larry Katz: Providing.

Larry Katz: More data points and more data trees for them to profitably decision the highest percentage of their income and consumers as possible. So we are seeing a higher take rate as people are seeing digital transformation being more critical to their long term success.

Speaker Change: Thanks, Chris and great color there alright, thank you all.

Larry Katz: And as a reminder, if you wish to ask a question. Please press star one.

Larry Katz: And there are no further questions at this time I would now like to hand, it back over to Rob.

Larry Katz: Joe Smith for closing remark.

Speaker Change: Thank you operator, and as we wrap up I know, you'll join me in welcoming Larry as our CFO.

Speaker Change: His experience is an asset to our business and I am glad you made the decision to join the team.

Speaker Change: Speaking of the team I want to thank everyone at Meridian link for a solid Q1 performance I'm consistently impressed by our employees dedication innovation and drive to succeed.

Larry Katz: And ending on a real high note. We are pleased to share that we have won a product innovation Stevie Award.

Larry Katz: We share this award with a customer choice for the innovative use of Meridian link insight to make measurable improvements across the lending lifecycle we.

Speaker Change: We are honored to be at the test.

Larry Katz: Honored to be their trusted partner and also so many other leading efi's.

Speaker Change: We look forward to speaking with you again soon and enjoy the rest of your day.

Speaker Change: Thank you and ladies and gentlemen. This concludes today's conference call you may now disconnect.

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