Q2 2024 MeridianLink Inc Earnings Call

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

Operator: for the earnings conference call. At this time, all lines are in a 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 Thursday, August 8. I would now like to turn the conference over to Gianna Rotellini. Please go ahead.

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 Thursday, August 8. I would now like to turn the conference over to Gianna Rotellini. Please go ahead.

Gianna Rotellini: Good afternoon, and welcome to MeridianLink's second 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, and President and Chief Financial Officer, Larry Katz.

Gianna Rotellini: Good afternoon and welcome to Marinian Link's second quarter fiscal year 2020 for earnings calls. They will be discussing the results announced in our press release issues after the market closed today.

Speaker Change: With me today are MeridianLink's Chief Executive Officer, Nicolaas Vlok, and President and Chief Financial Officer, Larry Katz.

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 make from time to time with the Securities and Exchange Commission.

Speaker Change: 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.

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 the periodic reports and filings we file from time to time with the Securities and Exchange Commission.

Gianna Rotellini: 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. Please note that, other than revenue, all numbers in our remarks are on a non-GAAP basis unless otherwise stated. A reconciliation to comparable GAAP metrics can be found in today's earnings presentation, which is available on our Investor Relations website and as an exhibit to the Form 8K furnished with the SEC just before this call. With that, I will turn the call over to Nikolaas.

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 statement.

Speaker Change: Please note that, other than revenue, all numbers in our remarks are on a non-GAAP basis, unless otherwise stated.

Speaker Change: A reconciliation to comparable gap metrics can be found in today's earnings presentation, which is available on our Investor Relations website and as an exhibit to the Form 8K furnished with the SEC just before this call.

Nicolaas Vlok: Thank you, Gianna. Good afternoon, everyone.

Speaker Change: With that, let me turn the call over to Nikolaas.

Nicolaas Vlok: Before speaking to our quarterly earnings, I want to start by commenting on our announcement earlier today that Chris Maloof, President of Go2Market, has decided to leave the company to pursue another opportunity outside of our industry. I want to thank Chris for his contributions over these past five years. He's helped build highly capable go-to-market and product teams that I am confident will lead the next chapter of MeridianLink's growth. I wish Chris well in his next chapter.

Nikolaas: Thank you, Gianna. Good afternoon, everyone.

Nikolaas: Before speaking to our quarterly earnings, I want to start by commenting on our announcement earlier today that Chris Maloof, President of Go2Market, has decided to leave the company to pursue another opportunity outside of our industry.

Nikolaas: I want to thank Chris for his contributions over these past five years.

Speaker Change: He's helped build a highly capable go-to-market and product teams that I am confident will lead the next chapter of MeridianLink's growth.

Nicolaas Vlok: I'm excited to announce that Larry Katz, our CFO, has been named president of MeridianLink. Larry's deeper experience in banking and consumer lending, as well as his years leading SaaS companies at scale, give me great confidence in his ability to lead our commercial effort. Larry has done an exceptional job integrating into our company, building confidence and trust with our team and our customers, and I'm excited to talk to all of them on the next leg of our journey.

Speaker Change: I wish Chris well in his next chapter.

Speaker Change: I'm excited to announce that Larry Katz, our CFO , has been named president of MeridianLink.

Speaker Change: Larry's deep experience in banking and consumer lending, as well as his years leading SaaS companies at scale, give me great confidence in his ability to lead our commercial efforts.

Speaker Change: Larry has done an exceptional job integrating into our company.

Speaker Change: Both in confidence and trust with our team and our customers.

Nikolaas: And I'm excited to partner with him on our next leg of our journey.

Nicolaas Vlok: We also announced this morning that Elias Almeida will be joining in late August as Chief Financial Officer. Elias is a proven CFO, having served as CFO of Mitchell International, a provider of SaaS solutions to the automotive and insurance industry, and most recently at Vistage Worldwide, a subscription-based professional services business. He currently serves on the board of Auto Canada.

Speaker Change: We also announced this morning that Elias Almeida will be joining in late August as Chief Financial Officer.

Speaker Change: Elias is a proven CFO, having served their CFO of Michelin International, a provider of SaaS solutions to the automotive and insurance industry, and most recently at Vlitch Worldwide, the subscription-based professional services business.

Nicolaas Vlok: Canada's largest automotive dealer group and public company. Elias and Larry work together in their careers at JP Morgan Chase, where they've gained deep understanding of our engine. Larry will continue to serve as Chief Financial Officer until their lives are stored.

Nikolaas: Elias currently serves on the board of Auto Canada, Canada's largest automotive dealer group and public company.

Nikolaas: Elias and Larry work together in the career of JP Morgan Chase, where they've gained deep understanding of our industry.

Speaker Change: Larry will continue to serve as Chief Financial Officer until Elias' store date.

Nicolaas Vlok: I'm confident that with these changes, we continue to strengthen our management team with proven SaaS leaders who have deep industry knowledge and have operated successfully at scale. I'm excited to partner with both Larry and Elias in the new role. Now that we've done that, let's turn to Arizona. We delivered a strong second quarter against a continued challenging macro backdrop, achieving gap revenue of $78.7 million, or 4% growth year-over-year, and adjusted EBITDA of $31.8 million at a 40% EBITDA margin, meeting the high-end of our guidance range for both men. Our free cash flow was $12.41. As I was leading Vliet of Saskam.

Speaker Change: I'm confident that with these changes we continue to strengthen our management team with proven SaaS leaders who have deep industry knowledge and have operated successfully at scale.

Speaker Change: I'm excited to partner with both Larry and Elias in their new roles.

Speaker Change: With that, let's turn to our results.

Speaker Change: We delivered a strong second quarter against a continued challenging macroback crop, the cheating gap revenue of 78.7 million, or 4% growth year over year, and adjusted EBITDA of 31.8 million, and a 40% EBITDA margin.

Speaker Change: meeting the high-end of our guidance range for both metrics.

Speaker Change: Our free cash flow was $12.4 million.

Nicolaas Vlok: We continue to successfully execute our land and expand strategy while also generating strong profitability. Once again, this quarter, gap revenue and adjusted Aveda grew at a price of continued market headwinds, including multi-year lows in auto lending and generational lows in mortgage. Our performance highlights the resilience of our business model, the continued demand for MeridianLink One, our end-to-end lending platform, and our disciplined execution. This demand comes from both new and existing customers who select MeridianLink to enable the digital progression journey to compete and win in this market.

Speaker Change: As a leading vertical SaaS company, we continue to successfully execute our land and expand strategy while also generating strong profitability.

Speaker Change: Once again, this quarter, gap revenue and adjusted EBITDA grew in the face of continued market headwinds.

Speaker Change: including multi-year lows in auto-landing and generational lows in mortgage.

Speaker Change: Our performance highlights the resilience of our business model.

Speaker Change: The continued demand for MeridianLink ONE, end-to-end learning platform, and our disciplined execution.

Speaker Change: This demand comes from both new and existing customers who select MeridianLink to enable their digital progression journey to compete and win in this market.

Nicolaas Vlok: I'd like to take a moment to comment on recent industry trends that highlight our customers' continued push to digital. Our strategic partner, Jack Henry, recently released its 2024 Strategic Priorities Benchmark Study, which showed that 97% of financial institutions plan to enhance lending solutions and 80% plan to increase technology spend within the next two years. Credit unions, in particular, are bullish on technology budgets as a necessary investment to compete for the consumer's debt wallet in an increasingly digital world. Based on a recent report published by DigitalBankingReport.com, which offers insights on digital transformation trends in the banking industry. 19% of financial institutions plan to enable digital learning within one year.

Speaker Change: I'd like to take a moment to comment on recent industry trends that highlight our customers' continued push to digital.

Speaker Change: Our strategic partner Jack Henry's recent 2024 Strategic Priorities Benchmark Study showed that 97% of financial institutions plan to enhance lending solutions and 80% plan to increase technology spend within the next two years.

Speaker Change: Created unions, in particular, abolishing technology budgets as a necessary investment to compete for the consumer's debt wallet in an increasingly digital world.

Speaker Change: Python, a recent report published by digitalbankingreport.com, which offers insights on digital transformation trends on the banking industry, 19% of financial institutions plan to enable digital learning within one year.

Nicolaas Vlok: We too are seeing these trends in our strong sales activity as mid-market financial institutions continue to turn to MeridianLink as a trusted partner to execute their digital lending strategy. Well, that, I would like to speak to our continued success, expanding the share of wallet worth an out existing customer by. CrossSell continues to drive demand as our customers invest to further automate their lending capabilities with MeridianLink ONE. This quarter, we continue to see momentum cross-selling consumer lending customers on MeridianLink Mortgage. This buying behavior highlights the trend we are seeing of customers leaning into digital mortgage transformation in anticipation of the market recovery.

Speaker Change: We too are seeing these trends in our strong sales activity as mid-market financial institutions continue to turn to Meridian Link as a trusted partner to execute their digital lending strategy.

Speaker Change: With that, I would like to speak to our continued success expanding share of wallet within our existing customer base.

Speaker Change: CrossSell continues to drive demand as our customers invest to further automate their lending capabilities with MeridianLink One.

Speaker Change: This quarter, we continue to see momentum cross-selling consumer lending customers on MeridianLink Mortgage. This buying behavior highlights the trend we are seeing of customers leaning into digital mortgage transformation in anticipation of the market recovery.

Nicolaas Vlok: Among these cross-sell ones, a long-standing $3 billion AUM MeridianLink consumer lending customer adopted MeridianLink Mortgage, MeridianLink Mortgage Access, and our patented debt optimization solution. With full debt wallet visibility of its borrowers, this credit union's loan officers are now equipped to offer fast, personalized services and support. Due to the power of our platform, our customers can increase acceptance rates, boost cross-sell opportunities, and deepen client relationships, all of which drive engagement and revenue. This quarter, we also continue to win high-value new logo deals.

Speaker Change: Among these cross-sell ones, a long-standing $3 billion AUM MeridianLink consumer lending customer adopted MeridianLink Mortgage, MeridianLink Mortgage Access, and our patented debt optimization solution.

Speaker Change: With full deck wallet visibility of its borrowers, this created Union's loan offices are now equipped to offer fast, personalized services and support.

Speaker Change: Due to the power of our platform, our customers can increase acceptance rates, boost cross-sell opportunities, and deepen client relationships, all of which drive engagement and revenue.

Speaker Change: This quarter, we also continue to run high-value new logo deals.

Nicolaas Vlok: For example, we want a 2 billion IU in bank, who adopted our home equity and credit card modules through MeridianLink 1. This was a big one as this customer previously had an on-premise home equity solution from a core provider and referred all credit card inquiries to their competitor. With MeridianLink 1, the customer is now fully in the cloud and manages its own credit card program. Our platform generates immediate ROI upon go-live, which made it an easy decision to go with MeridianLink to evolve their digital lending strategy.

Speaker Change: For example, we want a 2 billion IU in bank. We adopted our home equity and credit card modules through MeridianLink 1.

Speaker Change: This was a big one, as this customer previously had an on-premise home equity solution from a court provider and referred all credit card inquiries to the competitors.

Speaker Change: With MeridianLink ONE, the customer is now fully in the cloud and manages their own credit card program.

Speaker Change: Our platform generates immediate ROI upon go-live, which made it an easy decision to go with MeridianLink to evolve their digital lending strategy.

Nicolaas Vlok: I want to further spotlight the ROI that our customers can achieve by implementing our platform. In Q2, Three Rivers Federal Credit Union went live with both MeridianLink access and opening and cut down loan application times from two days to approximately two hours. With these efficiencies, 3Reverse has improved the customer experience while increasing completed application rates.

Speaker Change: Next.

Speaker Change: I want to further spotlight the ROI that our customers can achieve by implementing our platform.

Speaker Change: in Q2, through your reverse federal credit union, when live with both marine and link access and opening, and cut down loan application times from two days to approximately two hours.

Speaker Change: With these efficiencies, 3Reverse has improved the memory experience while increasing completed application rates.

Nicolaas Vlok: This is a significant achievement in today's challenging lending market and the further proof point that automation through MeridianLink One delivers strong returns. This quarter, we also enhanced our product capabilities through a new integration between MeridianLink Insight, our business intelligence solution, and MeridianLink Collect, our collections product. With this new connectivity to insight, customers can now access advanced analytics to run their business, including a new payment propensity index powered by AI that incorporates the probability of payment on the link between the loans.

Speaker Change: This is a significant achievement in today's challenging lending market and a further proof point that automation through MeridianLink One delivers strong returns.

Speaker Change: This quarter we also enhanced our product capabilities through a new integration between MeridianLink Insight, our business intelligence solution, and MeridianLink Collect, our collections product.

Speaker Change: With this new connectivity to Insight, customers can now access advanced analytics to run their businesses, including a new payment propensity index powered by AI that incorporates the probability of payment on delinquent loans.

Nicolaas Vlok: This is a great example of the differentiated capabilities MeridianLink offers, built on our deep experience and knowledge of our endmarket. Finally, we announce a partnership with Conductive, a leader in providing missing permission data to meet underwriting guidelines. Through a pre-configured integration with MeridianLink One, our shared customers leverage AI for alternative decisioning, which allows them to approve more loans and serve more consumers quickly. For example, due to this new integration, Everwise Credit Union has seen lenders achieve up to 47% lift in approval rates without increasing expected loss. With our extensive partner network available through the MeridianLink One platform, we are able to rapidly bring to market the most innovative capabilities that enhance customer lending processes.

Speaker Change: This is a great example of the differentiated capabilities, but it is a link offers, both on our deep experience and knowledge of our inbox.

Speaker Change: Finally, we announced a partnership with Conductive, a leader in providing missing permission data to meet underwriting guidelines.

Speaker Change: Through a pre-configured integration with Meridian Link 1, our shared customers leverage AI for alternative decisioning, which allows them to approve more loans and serve more consumers quickly.

Speaker Change: For example, due to this new integration, Everwise Credit Union has seen lenders achieve up to 47% lift in approval rates without increasing expected losses.

Speaker Change: With our extensive partner network available through the MeridianLink One platform, we are able to rapidly bring to market the most innovative capabilities that enhance customer lending processes.

Nicolaas Vlok: Overall, these Q2 highlights reflect our continued success as the most advanced financial services technology platform for our customers, from automating their learning processes across different lines of business to adopting innovative capabilities such as AI to improve efficiency and customer experience. With over 25 years of in-depth expertise, we continue to differentiate ourselves as a leading vertical SaaS provider in the lending software industry. With that, I'll turn the call over to Larry to take us through the financials and guidance.

Speaker Change: Overall, these Q2 highlights reflect our continued success as the most financial services technology platform for our customers.

Speaker Change: from automating their learning processes across different lines of business to adopting innovative capabilities such as AI to improve efficiency and customer experience.

Speaker Change: With over 25 years of in-depth expertise, we continue to differentiate ourselves as a leading vertical SaaS provider in the lending software industry.

Speaker Change: But that, I'll turn the call over to Larry to take us through the financials and guidance.

Larry Katz: Thank you, Nicholas. I'm honored and humbled to take on the president role at MeridianLink. I appreciate your and the board's confidence in me. I'm excited to continue to partner with Nicholas and our leadership team to drive the next leg of MeridianLink's growth. As I shared in last quarter's call, I'm here because I believe in the power of our platform to enable our customers to compete and win in the market. Over these past months, I've gained even greater excitement for the opportunity to grow this business organically and inorganically.

Larry Katz: Thank you, Nicolaas. I'm honored and humbled to take on the President role in Meridian Lake. I appreciate your and the board's confidence in me. I'm excited to continue to partner with Nicolaas and our leadership team to drive the next lake of Meridian Lake's growth.

Larry Katz: As I shared in last quarter's call, I'm here because I believe in the power of our platform to enable our customers to compete and win in the market.

Speaker Change: Over these past months, I've gained even greater excitement for the opportunity to grow this business organically and inorganically. There's a lot of opportunity here, and we are just getting started.

Larry Katz: There's a lot of opportunity here, and we are just getting started. I'm deeply committed to this mission and look forward to further engaging with our customers, partners, and employees to help lead the next chapter at MeridianLink. I'm also excited to welcome Elias Olmeita as CFO.

Speaker Change: I'm deeply committed to this mission and look forward to further engaging with our customers, partners, and employees to help leave the next chapter I'm running like.

Larry Katz: Elias is a proven SaaS CFO having successfully scaled SaaS and services businesses organically and through M&A. He's a smart, analytical commercial leader, and we share the same vision and goals for the CFO role. I'm looking forward to partnering with him and the rest of the leadership team to drive commercial execution and operational excellence across this company. Now, to our results. MeridianLink demonstrated solid performance in Q2 in the face of continued macro headwinds.

Speaker Change: I'm also excited to welcome Elias Olmeita as CFO .

Speaker Change: The Lions is approving SAS CFO having successfully scaled SAS and services businesses organically and through a minute. He's a smart analytical commercial leader and we share the same vision and goals for the CFO role.

Elias Olmeita: I'm looking forward to partnering with him and the rest of the leadership team to drive commercial execution and operational excellence across this company.

Larry Katz: We generate gap revenue of $78.7 million, up 4% year-over-year, led by lending solutions revenue growth of 11%. Adjusted EBITDA was $31.8 million, or a 40% margin, and grew 17% year-over-year. Both GAAP revenue and Adjusted EBITDA were in line with the high end of our guidance. We generated $12.4 million of free cash flow and ended Q2 with $93 million of cash and cash equivalents. Total debt was $475.1 million, and excluding debt issuance costs and cash, net debt was $377.89.

Speaker Change: Turning now to our results.

Speaker Change: MeridianLink demonstrated solid performance in Q2 in the face of continued macro headwinds.

Speaker Change: We generated GAAP revenue of $78.7 million, up 4% year-over-year, led by lending solutions revenue growth of 11%.

Speaker Change: Adjusted EBITDA was $31.8 million, or a 40% margin, and grew 17% year-over-year.

Speaker Change: Both GAAP Revenue and Adjusted EBITDA were in line with the high end of our guidance range.

Speaker Change: We generated $12.4 million of free cash flow and ended Q2 with $93 million of cash and cash equivalents.

Speaker Change: Total debt was 475.1 million and excluding debt issuance costs and cash, net debt was 377.8 million

Larry Katz: The company executed several significant capital markets activities in the quarter. In May, we took advantage of a favorable market window and successfully repriced our existing $426 million term loan, reducing interest expense by approximately 51 basis points. Due to strong institutional demand, the repricing was oversubscribed, and we were able to opportunistically raise a $50 million fungible add-on to the repriced term loan at par. Additionally, during the first half of 2024, we returned $74.3 million of capital via stock repurchase. We have $61.3 million of repurchase authorization remaining. These share buybacks are consistent with the capital allocation framework I articulated last quarter.

Speaker Change: The company executed several significant capital markets activities in the quarter.

Speaker Change: In May, we took advantage of a favorable market window and successfully repriced our existing $426 million term loan, reducing interest expense by approximately 51 basis points.

Speaker Change: To a strong institutional demand, the repricing was ever subscribed and we were able to opportunistically raise a 50 million vulnerable add-on to the repriced term loan at par.

Speaker Change: During the first half of 2024, we returned 74.3 million of capital via stock repurchases.

Speaker Change: We have $61.3 million of repurchase authorization remaining. These share buybacks are consistent with the capital allocation framework I articulated last quarter. As outlined, we will strategically repurchase our own shares when trading at a discount to intrinsic value.

Larry Katz: As outlined, we will strategically repurchase our own shares when trading at a discount to intrinsic value. Before going into more detail on the Q2 results, I would like to share some context on the current macro environment. Today we are managing our business through three headwinds, which we expect will normalize but in the near term are impacting our customers and constraining our growth. First, community banks and credit unions are facing lower deposit flows post-COVID era, which is weighing on loan volume growth.

Speaker Change: Before going into more detail in Q2 results, I would like to share some context of the current macro environment.

Speaker Change: Today we are managing our business through three headwinds, which we expect will normalize, but in the near term are impacting our customers and constraining our growth.

Speaker Change: First, community banks and credit unions are facing lower deposit flows post-COVID-era stimulus.

Larry Katz: During those stimulus years, FIs benefited from strong deposit inflows and invested in yield-generating assets, including Autolunk. However, deposit flows have since slowed due to both tighter monetary policy and the availability of higher yielding alternatives such as money market funds. Meanwhile, absent durations such as auto loans have extended. This has resulted in credit unions and community banks seeing highly elevated loan-to-deposit ratios, which, combined with weaker credit performance, has led FIs to tighten credit and lower origination volumes. OAM captives have stepped in to fill the auto financing gap in order to move inventory from dealer lots.

Speaker Change: which is weighing on loan volume growth.

Speaker Change: During those stimulus years, FIs benefited from strong deposit inflows and invested in yield-generating assets, including auto loans.

Speaker Change: The positive flows have since slowed due to both contracting monetary policy and the availability of higher yielding alternatives, such as money market funds.

Speaker Change: Meanwhile, asset duration such as auto loans have extended.

Speaker Change: This was resulted in credit unions and community banks, seen highly elevated loan to deposit ratios, which combined with weaker credit performance has led FI's to tighten credit and lower origination volumes.

Speaker Change: OEM captives have stepped in to meet the auto financing gap in order to move inventory from dealer lots.

Larry Katz: We view this shift as temporary, but to date, we have not seen our customers participate pro rata in the modest industry growth forecasted by industry sources. We expect that when rates start to come down, community banks and credit union balance sheets will normalize and unlock volume growth. We're starting to see early signs of improving quarter-to-quarter volume trends across our customer base. Second, used car affordability has yet to normalize back to pre-pandemic levels. Affordability of used cars continues to be out of reach for many due to higher prices and increased finances.

Speaker Change: We do this shift as temporary, but today we have not seen our customers participate, Corrata, and the modest industry growth forecasted by industry sources.

Speaker Change: We expect that when rates start to come down, community banks and credit union balance sheets will normalize and unlock volume growth. We are starting to see early signs of improving quarter-to-quarter volume trends across our customer base.

Speaker Change: Second, used car affordability has yet to normalize back to pre-pandemic levels.

Speaker Change: Affordability of used cars continues to be out of reach for many due to higher prices and elevated financing rates.

Larry Katz: Hired used car prices have resulted from limited used car inventories post the COVID era spike in used car demand. We expect that as higher new car inventories work their way to used car lots, used car inventories will rise, and prices will fall, though it may take several periods to see this impact on used car prices. We also expect affordability will improve with lower financing rates, but today, financing rates remain elevated. Third, mortgage unit volumes continue to be at generational lows.

Speaker Change: hired use car prices have resulted from limited use car inventories, post the COVID era spike in use car demand.

Speaker Change: We expect that as higher new car inventories work their way to used car lots, used car inventories will rise and prices will fall. Though it may take several periods to see this impact on used car prices.

Speaker Change: We also expect affordability will improve with lower financing rates, but today financing rates remain elevated.

Larry Katz: We're beginning to see improving mortgage volumes consistent with NBA forecasts, but volumes are still roughly 50% below the 25-year average. We expect that mortgage volumes, too, will improve with greater confidence and lower long-term risk.

Speaker Change: Third, mortgage-unit violence continue to be a generational lows. We're beginning to see improving mortgage violence consistent with NBA forecast.

Operator: Thank you, 24 earnings, conference call. At this time, aligns another Sonoli mode.

Speaker Change: But volumes are still roughly 50% below 25-year averages.

Gianna Rotellini: Following the presentation, we'll conduct a question and answer a session. If at any time, we will be discussing the results announced in our press release issued after the market closed today. With me today, our MeridianLink's Chief Executive Officer, Nicolaas Vlok, and President and Chief Financial Officer, Larry Katz.

Speaker Change: We expected mortgage volumes to will improve with greater confidence and lower long-term rates.

Larry Katz: Despite these macro headwinds, our business model has performed quite well and proven to be resilient, in part due to our hybrid minimum and consumption pricing model. We continue to manage what we can control, generating healthy demand from new and existing customers, while proactively investing in advance of a return to stronger bodies. Turning now to our Q2 performance, starting with gap repping.

Speaker Change: Despite these macro headwinds, her business model has performed quite well and proven to be resilient in part due to our hybrid, minimum and consumption pricing model. We continue to manage what we can control, generating healthy demand from new and existing customers while proactively investing in advance of a return to stronger bodies.

Larry Katz: First, looking at revenue by source, total GAAP revenue growth was 4% year-over-year, driven by 3% growth in subscription revenue, 6% growth in services revenue, and 20% growth in other revenue. Subscription growth was positively impacted by a one-time reduction in Q2'23 revenue of $2.3 million, which related to a commercial dispute with a contract acquired via a past acquisition. Adjusting for this one-time revenue reduction in the prior year period, total gap revenue grew 1% year-over-year, and subscription revenue was flat year-over-year.

Speaker Change: Turning now back to our Q2 performance and starting with GAAP Revenue.

Speaker Change: Looking first at revenue by source.

Speaker Change: Total GAAP revenue growth was 4% year-over-year driven by 3% growth in subscription revenue, 6% growth in services revenue, and 20% growth in other revenue.

Gianna Rotellini: Before we begin, I'd like to remind you that today's conference calls 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 made different 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 statements.

Speaker Change: Subscription growth was positively impacted by a one-time reduction in Q223 revenue of 2.3 million dollars, which related to a commercial dispute of a contract acquired via a past acquisition.

Speaker Change: Adjusting for this one-time revenue reduction in the prior year period, total gap revenue grew one percent year over year, and subscription revenue was flat year over year.

Larry Katz: Subscription revenue, which accounts for 84% of total revenue, included higher revenue from strong ACV releases offset by lower revenue from lower volume, further breaking down total revenue by solution type. Total lending software revenue growth was 11% year over year and accounted for nearly 78% of revenue. Adjusting for the one-time revenue reduction in Q2'23, lending software revenue growth was 6%. Non-mortgage lending revenue growth was 14%, or 9%, adjusting for the one-time Q2-23 revenue reduction, and accounted for 90% of lending software revenue.

Speaker Change: Subscription revenue, which accounts for 84% of total revenue, included higher revenue from strong ACV release, offset by lower revenue from lower volumes.

Speaker Change: further breaking down total revenue by solution type.

Speaker Change: Total lending software revenue growth was 11% year over year and accounted for nearly 78% of revenue.

Gianna Rotellini: Please note that, other than revenue, all numbers in our remarks are on a non-gap basis, unless otherwise stated. A reconciliation to comparable gap metrics can be found in today's earnings presentation, which is available on our investor relations website and, as an exhibit, to the form A.K, furnished with the SEC just before this call.

Speaker Change: Adjusting for the one-time revenue reduction in Q2'23, lending software revenue growth was 6%.

Speaker Change: Non-mortgage lending revenue growth was 14%, or 9%, adjusting for the one-time Q2-23 revenue reduction, and accounted for 90% of lending software revenue.

Larry Katz: This growth was largely attributable to strong ACV release from existing and new customers. Mortgage related revenue within lending software solutions declined 13% year over year and accounted for the remaining 10% of lending software revenue. This decline year-over-year is attributable to customer churn and strength in the year-ago quarter. Mortgage volumes in a quarter were up year over year, but it will take time for volumes to push more customers above their committed minimum. Turning to data verification software solutions

Gianna Rotellini: With that, let me turn the call over to Nicolaas.

Speaker Change: This growth was largely attributable to strong ACV release from existing and new customers.

Nicolaas Vlok: Thank you, Gianna.

Nicolaas Vlok: Good afternoon, everyone.

Speaker Change: Mortgage-related revenue within lending software solutions declined 13% year over year and accounted for the remaining 10% of lending software revenue.

Nicolaas Vlok: Before speaking to our quarterly earnings, I want to start by commenting on our announcement earlier today, that Chris Maloof, President of Go-To-Market, has decided to leave the company to pursue another opportunity outside of our industry. I want to thank Chris for his contributions over these past five years. He's helped build a highly capable Go-To-Market and product teams, that I am confident will lead the next chapter of Muradian Link's growth.

Speaker Change: This decline year-over-year is attributable to customer churn and strength in the year-ago quarter.

Speaker Change: Mortgage volumes in the quarter were up year over year, but it will take time for volumes to push more customers above their committed minimums.

Larry Katz: Revenue declined 13% year-over-year and accounted for 22% of total revenue. This decline was attributable to a 22% decrease in mortgage-related revenue, which represented 55% of total verification software revenue in Q2. This decline in mortgage-related data verification revenue was driven by the downsell of a single large customer.

Speaker Change: Turning to data verification software solutions.

Nicolaas Vlok: I wish Chris well in his next chapter.

Speaker Change: Revenue declined 13% year over year and accounted for 22% of total revenue.

Nicolaas Vlok: I'm excited to announce that Larry Katz, our CFO, has been named President of Muradian Link. Larry's deep experience in banking and consumer lending, as well as his years leading SaaS company set scale, gives me great confidence in his ability to lead our commercial efforts. Larry has done an exceptional job integrating into our company, building confidence and trust with our team and our customers. And I'm excited to partner with him on our next leg of our journey.

Speaker Change: This decline was attributable to a 22% decrease in mortgage-related revenue, which represents 55% of total verification software revenue in Q2.

Speaker Change: This decline in mortgage-related data verification revenue was driven by the downsell of a single large customer.

Larry Katz: Moving to profitability, adjusted gross profit was $56.8 million, or a 72% margin. This represents 230 basis points of improvement in operating leverage year over year, driven by increased productivity of our service. Turning to operating expenses, sales and marketing expense was $9.6 million, 12% of revenue, up 29% year-over-year.

Speaker Change: Moving to profitability. Adjusted gross profit was $56.8 million or a 72% margin.

Speaker Change: This represents 230 basis points of improvement in operating leverage year over year driven by increased productivity of our services team.

Larry Katz: This increase is due to investment in our go-to-market team and higher costs for MeridianLink Live, our annual user event. R&D expense was $7.2 million, 9% of revenue, and declined 26% year-over-year, reflecting continued cost discipline, including lower staffing due to our previously announced restructuring. G&A expense increased 7% year-over-year to $9.8 million, or 12% of revenue.

Nicolaas Vlok: We also announced this morning that Elias Olmeida will be joining in late August as Chief Financial Officer. Elias has proven CFO, having served as CFO of Mitchell International, a provider of SaaS solutions to the automotive and insurance industry, and most recently at Vestiche Worldwide, a subscription-based professional services business. Elias currently serves on the board of Water Canada, Canada's largest automotive dealer group and public company. Elias and Larry work together in their careers at JP Morgan Chase, where they've gained deep understanding of our industry.

Speaker Change: Turning to operating expenses.

Speaker Change: Sales and marketing expense was $9.6 million, 12% of revenue, up 29% year-over-year. This increase is due to investment in our go-to-market team and higher costs for MeridianLink Live, our annual user event.

Speaker Change: R&D expense was $7.2 million, 9% of revenue, and declined 26% year-over-year, reflecting continued cost discipline, including lower staffing due to our previously announced restructuring.

Speaker Change: [inaudible]

Speaker Change: G&A expense increased 7% year-over-year to $9.8 million or 12% of revenue.

Larry Katz: Adjusted EBITDA was $31.89, or a 40% margin. This represents 440 basis points of improvement in operating leverage year over year and reflects our continued cost discipline while strategically investing in our go-to-market team to drive growth. Finishing with Cash Flow and Leverage. We ended the second quarter with cash and cash equivalents of $93 million, an increase of $30.7 million from Q1. This increase was driven by our termline upsizing net-of-share repurchase. Total debt was $475.1 million, and excluding debt issuance costs and cash and cash equivalents, net debt was $377.8 million.

Nicolaas Vlok: Larry will continue to serve as chief financial officer until Elias has started. I'm confident that with these changes, we continue to strengthen our management team with proven SaaS leaders who have deep industry knowledge and have operated successfully at scale. I'm excited to partner with both Larry and Elias in the new roles.

Speaker Change: A just to leave it down was 31.89 or a 40% margin.

Speaker Change: This represents 440 basis points of improvement in operating leverage year over year and reflects our continued cost discipline while strategically investing in our go-to-market team to drive growth.

Speaker Change: Finishing with cash flow and leverage, we ended the second quarter with cash and cash equivalents of $93 million, an increase of $30.7 million from Q1.

Nicolaas Vlok: Well that, let's turn to our results. We delivered a strong second quarter against a continued challenging macro backdrop, achieving gap revenue of 78.7 million or 4% growth year over year and adjusted EBITDA of 31.8 million and a 40% EBITDA margin, meeting the high end of our guidance range for both metrics. Our free cash flow was 12.4 million. As a leading vertical SaaS company, we continue to successfully execute our land and expand strategy while also generating strong profitability.

Speaker Change: This increase was driven by our turn-long, up-sizing, matter-sharing purchases.

Speaker Change: Total debt was $475.1 million, and excluding debt issuance costs and cash and cash equivalents, net debt was $377.8 million.

Larry Katz: Cash flow from operations was $14.4 million, or 18% of revenue, and free cash flow was $12.4 million, or 16% of revenue. I'll now turn to guidance for Q3 and updated guidance for the full year 2024. We are encouraged by our first half performance, which was driven by ACV release and disciplined execution, and we expect those to be the drivers of performance in the second half as well. Volumes were a headwind to growth in the first half, and though the interest rate outlook is improving, we expect the impact of anticipated grade cuts on our second half volumes and revenue to be gradual.

Speaker Change: Cash flow from operations was $14.4 million, or 18% of revenue, and free cash flow was $12.4 million, or 16% of revenue.

Speaker Change: I'll now turn to guidance for Q3 and updated guidance for the full year 2024.

Speaker Change: We are encouraged by our first half performance, which was driven by ACV release and disciplined execution. And we expect those to be the drivers of performance in the second half as well.

Nicolaas Vlok: Once again, this quarter, gap revenue and adjusted EBITDA grew in the price of continued market headwinds, including multi-year lows in auto landing and generational lows in mortgage. Our performance highlights the resilience of our business model. The continued demand for MeridianLink 1 end-to-end landing platform and our disciplined execution. This demand comes from both new and existing customers who select MeridianLink to enable their digital progression journey to compete and win in this market.

Speaker Change: Volumes were a headwind to growth in the first half, and though the interest rate outlook is improving, we expect the impact of anticipated rate cuts on our second half volumes and revenue to be gradual.

Larry Katz: Our current consumer lending volume trends do not yet point to visible signs of higher growth, and in line with lower growth expectations across industry sources, we expect that it will take time for a series of rate cuts to accelerate growth. We view rate cuts as a leading indicator of higher consumer volumes, though, as I discussed earlier, community bank and credit union loan-to-deposit ratios remain elevated, and used auto affordability has not yet normalized.

Speaker Change: Our current consumer lending volume trends do not yet point to visible signs of higher growth, and in line with lower growth expectations across industry sources, we expect that it will take time for a series of break cuts to accelerate growth.

Speaker Change: We view rate cuts as a leading indicator of higher consumer bonds. So, as I discussed earlier, Community Bank and Credit Union loaned deposit ratios remain elevated and used auto affordability has not yet normalized.

Nicolaas Vlok: I'd like to take a moment to comment on recent industry trends that highlight our customers continued pushed to digital. Our strategic partner, Jack Henry's recent 2024 strategic priorities benchmark study showed that 97% of financial institutions planned to enhance landing solutions and 80% planned to increase technology spend within the next two years. Created unions, in particular, are bullish on technology budgets as a necessary investment to compete for the consumer debt wallet in an increasingly digital world.

Larry Katz: Mortgage industry sources forecast volumes to improve in the second half, though more modestly than previously forecast. In the mortgage industry, we expect the impact of these higher volumes on revenue to be modest due to committed minimums. Within this macro, we're focused on the things within our control, including discipline, cost management, and stockholder return. We continue to prioritize winning new logos and cross-sell mandates, releasing ACB to revenue, and innovating MeridianLink One to meet evolving consumer lending needs. With that in mind, I'll share our updated guide.

Speaker Change: Mortgage industry sources forecast volumes to improve in the second half, though more modestly than previously forecasted. In mortgage, we expect the impact of these higher volumes on revenue to be modest due to committed minimums.

Speaker Change: Within this macro, we're focused on the things within our control, including discipline, cost management, and stockholder return.

Speaker Change: We continue to prioritize winning new logos and cross-sell mandates, releasing ACV to revenue, and innovating MeridianLink One to meet evolving consumer lending needs.

Nicolaas Vlok: Byton, a recent report published by DigitalBankingReport.com, which offers insights on digital plans to enable digital landing within one year. We too are seeing these trends in our strong sales activity as met market financial institutions continue to turn to MeridianLink as a trusted partner to execute their digital landing strategy. With that, I would like to speak to our continued success expanding share of wallet with an out existing customer base. Procell continues to drive demand as our customers invest to further automate their landing capabilities with MeridianLink 1.

Larry Katz: For the third quarter, estimated total GAAP revenue is expected to be between $78 and $81 million compared to $76.5 million for the same period in 2023. This represents an estimated year-over-year change of 2 to 6% For the full year 2024, we expect total GAAP revenue to be between $312 million and $318 million, compared to $303.6 million for the full year 2023. This represents an estimated increase of 3 to 5% year-over-year. We expect the mortgage market to contribute approximately 20% of GAAP revenue for the third quarter and for the full year of 2024, to provide more color around the drivers of our total revenue.

Speaker Change: With that, I'll share our updated guidance.

Speaker Change: For the third quarter, estimated total GAAP revenue is expected to be between $78 and $81 million compared to $76.5 million for the same period in 2023. This represents an estimated year-over-year change of 2 to 6 percent.

Speaker Change: For the full year 2024, we expect total GAAP revenue to be between $312 million and $318 million compared to $303.6 million for the full year 2023. This represents an estimated increase of 3-5% year-over-year.

Speaker Change: We expect the mortgage market to contribute approximately 20% of gas revenue for the third quarter and for the full year 2024.

Nicolaas Vlok: This quarter, we continue to see momentum cross-selling consumer landing customers on MeridianLink Maui. This buying behavior highlights the trend we are seeing of customers leaning into digital mortgage transformation in anticipation of the mockery recovery. Among these cross-cell ones, a long-standing 3 billion AUM MeridianLink consumer-learning customer adopted MeridianLink mortgage, MeridianLink mortgage access, and are patented debt optimization solution. With full debt wallet visibility of its borrowers, this created union's loan officers are now equipped to offer fast, personalized services and support. Due to the power of our platform, our customers can increase acceptance rates, boost cross-cell opportunities, and deepen client relationships, all of which drive engagement and 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. Additionally, we continue to realize the impacts of downselling a single large MCL customer and customer churn. For our non-mortgage-related data verification software solutions, we expect a return to low single-digit growth year-over-year if the employment screening market reacts to job openings and labor turnover. For non-mortgage lending revenue

Speaker Change: to provide more color around the drivers of our total revenue.

Speaker Change: 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.

Speaker Change: Additionally, we continue to realize the impacts of downsell of a single large MCL customer and customer churn.

Speaker Change: For our non-organ-related data verification software solutions, we expect to return to the most single-digit growth your year as the employment screening market reacts to job openings and they return over.

Larry Katz: We expect mid- to high-single-digit growth year-over-year, driven primarily by ACV release. Now focusing on our adjusted EVA dog guide. The third-quarter estimated adjusted EBITDA is expected to be between $30 million and $33 million, representing adjusted EBITDA margins of approximately 40% at the mid-quarter. For the full year 2024, we expect our adjusted EBITDA range to be between 123 million and 128 million, representing adjusted EBITDA margins of approximately 40% at the midpoint. I'll finish where I started today.

Speaker Change: for non-mortgage lending revenue.

Speaker Change: We expect mid to high single digit growth year every year, driven primarily by ACD release.

Speaker Change: Now focusing on our adjusted EBITDA guide.

Speaker Change: 3rd quarter estimated adjusted EBITDA is expected to be between 30 million and 33 million, representing adjusted EBITDA margins of approximately 40% at the midpoint.

Nicolaas Vlok: This quarter, we also continue to win high-value new logo deals. For example, we won a 2 billion AUM bank who adopted our home equity and credit card modules through MeridianLink 1.

Speaker Change: For the full year 2024, we expect our adjusted EBITDA range to be between 1203 million and 128 million, representing adjusted EBITDA margins approximately 40% at the midpoint.

Nicolaas Vlok: This was a big win as this customer previously had an on-premise home equity solution from a core provider and referred all credit card inquiries to their competitors. With MeridianLink 1, the customer has now fully in the cloud and manages their own credit card program. Our platform generates immediate ROI upon GoLive, which made an easy decision to go with MeridianLink to evolve their digital learning strategy.

Larry Katz: I'm very excited to take on the new challenge as president of the company and look forward to engaging with our customers and our partners to lead the next leg of MeridianLink's growth. With that, Nikolaas and I are happy to take any of your questions, and I'll turn it over to the operator.

Nicolaas Vlok: I'll finish where I started today. I'm very excited to take on the new challenge as president of the company and look forward to engaging with our customers and our partners to lead the next leg of Meridian Link's growth. With that, Nicolaas 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, if you'd like to ask a question, please press star 1. To withdraw your question, press star 2. One moment, please, for your first question. Your first question comes from Andrew Schmidt from Citi. Please go ahead.

Speaker Change: Thank you, ladies and gentlemen. If you like that's a question, please press star 1 to which I question, press star 2. One moment please for your first question.

Andrew Schmidt: Hey, guys. Thank you for taking my questions this evening.

Nicolaas Vlok: Next, I want to further spotlight the ROI that our customers can achieve by implementing our platform. In Q2, 3 reverse federal credit union went live with both MeridianLink access and opening and cut down loan application times from two days to approximately two hours. With these efficiencies, 3 reverse has improved the member experience while increasing completed application rates.

Speaker Change: Your first question comes from Andrew Smith, from City, please go ahead.

Andrew Schmidt: It's good to see the mid to upper single-digit outlook for the non-mortgage lending software solutions piece. Maybe just drill down a little bit on that. It sounds like a lot of that is driven by ACV release, which probably goes back to better implementation efficiency.

Andrew Smith: Hey guys, thank you for taking my questions this evening. It's good to see the mid to upper single digit outlook for the non-mortgage lending software solutions piece.

Speaker Change: in maybe just drill down a little bit on that. It sounds like a lot of that is driven by ACV release, which probably goes back to better implementation efficiency. But beyond that.

Nicolaas Vlok: This is a significant achievement in today's challenging reading market and the further proof point that automation through MeridianLink 1 delivers strong returns. This quarter, we also enhance our product capabilities through a new integration between MeridianLink insight, our business intelligence solution, and MeridianLink collect our collections product. With this new connectivity to insight, customers can now access advanced analytics to run their businesses, including a new payment propensity index powered by AI that incorporates the probability of payment on the link on loans.

Andrew Schmidt: But beyond that, you know, any other drivers we should consider? And I think, you know, we think about filling the tank in terms of the booking pipeline there. How should we think about that? Thank you, guys.

Speaker Change: Um, you know, any other drivers we should consider, and I think, you know, we think about filling the tank in terms of bookings, pipeline, their, um, how should we think about that? Thank you guys.

Larry Katz: Thanks, Andrew. It's Larry. So, you're right. So, ACB is driving that second half non-lending, non-borrowing lending software growth. Sorry about that.

Larry Katz: Thanks, Andrew. It's Larry.

Speaker Change: so you're right it's so ACB is driving that that second half that second half non lending non lending mortgage not lending the non mortgage lending software growth sorry about that it is what's driving the growth is bookings and we've had really strong pipeline and strong bookings you know through last year and through the beginning of this year and it's released of that to ACB there's a little bit of as you said services

Larry Katz: It is, what's driving the growth is bookings, and we've had really strong pipeline and strong bookings, you know, through last year and through the beginning of this year, and it's released that to ACB. There's a little bit of, as you said, services, kind of executing services more efficiently and reducing lead times is a little bit of that, but it's really a function of our success on the go-to-market side and that translating from bookings through implementation and revenue. Offsetting that, of course, as I mentioned, is a little bit of volume headwinds, but that will, you know, we're expecting that to gradually recover.

Nicolaas Vlok: This is a great example of the differentiated capabilities MeridianLink offers, both on our deep experience and knowledge of our end market.

Nicolaas Vlok: Finally, we announce the partnership with Conductive, the leader in providing missing permission data to meet underwriting guidelines. Through a pre-configured integration with MeridianLink 1, our shared customers leverage AI for alternative decisioning, which allows them to approve more loans and serve more consumers quickly. For example, due to this new integration, Everwise created union has seen lenders achieve up to 47% lift and approval rates without increasing expected loss, with our extensive partner network available through the MeridianLink One platform, we are able to rapidly bring to market the most innovative capabilities that enhance customer lending processes.

Speaker Change: You know, kind of executing services more efficiently and reducing lead times is a little bit of that, but it's really a function of our versus success on the go-to-market side and that translating from booking to implementation and revenue.

Speaker Change: Offsetting that, of course, as I mentioned, is, you know, a little bit of volume headwinds, but that will, you know, we're expecting that to gradually recover.

Andrew Schmidt: Got it. Thank you, Larry.

Andrew Schmidt: And maybe I can switch to more of a product question. There is a real scarcity of account opening solutions out there, and you have one of them. As you articulated, deposit gathering is in high demand from financial institutions. So maybe you could talk about the demand trends that you're seeing there for account opening, and then if there's any additional investment that's going into that product to improve it. Thanks a lot, guys.

Speaker Change: Got it. Thank you, Larry. And then maybe I can switch to more of a product question.

Speaker Change: There is a real scarcity of account opening solutions out there, you have one of them.

Lachas: and as you articulated the positive gathering is in height demand from FI. So maybe you talk about you know demand trends that you're seeing there for account opening and then you know if there's any additional investment that's going into that product to improve it. Thanks, Lachas.

Nicolaas Vlok: Overall, these Q2 highlights reflect our continued success as the most trusted financial services technology platform for our customers, from automating their lending processes across different lines of business to adopting innovative capabilities such as AI to improve efficiency and customer experience.

Nicolaas Vlok: Hi Andrew. And thank you for the question. It's Nicholas.

Nicolaas Vlok: Yes, we've seen demand for account opening in our customer base and also in New Logo. We have our own account opening solution, which we think is a good fit for the mid-market, and we continue to market it as a standalone product, but, more importantly, as a key component of MeridianLink One, because once you start using the platform, the consumer spans the whole platform and our philosophy as it starts with onboarding at the account opening time frame.

Speaker Change: Hi, Andrew. And thank you for the question. It's Nicolaas.

Speaker Change: Yes, we've seen demand for account opening in our customer base and also in new logo.

Speaker Change: We have our own account opening solution which we think is a good fit to the market and we continue to market it as a standalone but more importantly as a key component of MeridianLink One.

Nicolaas Vlok: With over 25 years of in-depth expertise, we continue to differentiate ourselves as a leading vertical SaaS provider in the lending software industry.

Larry Katz: For that, I'll turn the call over to Larry to take us through the financials and guidance. Thank you, Declas.

Speaker Change: Because once you start using the platform, the consumer spans the whole platform and our philosophy as it starts with onboarding at the account opening time frame.

Larry Katz: I'm honored and humbled to take on the president role at MeridianLink. I appreciate your and the board's confidence in me. I'm excited to continue to partner with Nicholas and our leadership team to drive the next leg of MeridianLink's growth. As I shared in last quarter's call, I'm here because I believe in the power of our platform to enable our customers to compete and win in the market. Over these past months, I've gained even greater excitement for the opportunity to grow this business organically and inorganically.

Nicolaas Vlok: We also have account opening partnerships with folks out there that may have a more niche solution or a specific offering that a customer would like to implement. So we offer integration into MeridianLink One through our APIs, which continues to expand our ecosystem and also have us participate that way. In terms of product investment, we continue to invest in user experience and the digital front end, making it faster and easier to open up an account and also include partner integrations that would automate the process more.

Lachas: We also have account opening partnerships with folks out there that may have a more national solution or a specific offering that a customer would like to implement, so we offer integration and intermurarily and link one through our APIs.

Lachas: which continues to expand our ecosystem and also have us participate that way.

Lachas: In terms of product investment, we continue to invest in user experience and the digital front end.

Larry Katz: There's a lot of opportunity here and we are just getting started. I'm deeply committed to this mission and look forward to further engaging with our customers, partners, and employees to help lead the next chapter of MeridianLink.

Lachas: Making it faster and easier.

Nicolaas Vlok: Think of fraud, think of any kind of ID verification, any ability to tie it up where there are not a lot of hands touching it but it becomes digital and touchless. And basically, as the consumer enters information, it becomes immediately verifiable. And when the button gets hit, there's not a long wait for the process to conclude. So from our perspective, we think of our solution as a great fit combined with MeridianLink One. We also provide flexibility through our partner marketplace, now an API set, and we continue to invest in digital front end workflow automation and partner integrations that would speed up the whole account opening process.

Lachas: to open up an account and also include partner integrations that would automate the process more, think of, fraud, think of.

Larry Katz: I'm also excited to welcome Elias Olmeita as CFO. Elias is a proven SaaS CFO having successfully scaled SaaS and services businesses organically and through M&A. He's a smart analytical commercial leader and we share the same vision and goals for the CFO role. I'm looking forward to partnering with him and the rest of the leadership team to drive commercial execution and operational excellence across this company.

Speaker Change: kind of

Speaker Change: ID verification

Speaker Change: Any ability to tee it up where there is not a lot of hands touching it, but becoming digital and touchless.

Speaker Change: And basically, as the consumer enters information, it becomes immediately verifiable. And when the button gets hit, it's not a long wait for the process to conclude.

Larry Katz: Turning now to our results, MeridianLink demonstrated solid performance in Q2 and the face of continued macro headwinds. We generated gap revenue of 78.7 million of 4% year-over-year led by lending solutions revenue growth of 11%. Adjusted EBITDA was 31.8 million or 40% margin and grew 17% year-over-year. Both gap revenue and adjusted EBITDA were in line with the high end of our guidance range. We generated 12.4 million of free cash flow and ended Q2 with 93 million of cash and cash equivalents.

Speaker Change: So, from our perspective, we think of our solution as a great fit.

Speaker Change: combined with MeridianLink One. We also provide flexibility through our partner marketplace, now API set, and we continue to invest digital front-end workflow automation and partner integrations that would

Speaker Change: speed up the whole account opening process.

Andrew Schmidt: Super helpful. Thank you very much, Nicholas.

Speaker Change: Super helpful. Thank you very much, Nicholas.

Operator: Your next question comes from Parker Lane from Stiefel. Please go ahead.

Speaker Change: and welcome!

Speaker Change: Your next question comes from Parker Lane from Stiefel. Please go ahead.

Larry Katz: Total debt was $475.1 million and excluding debt issuance cost and cash net debt was $377.8 million. The company executed several significant capital markets activities in the quarter. In May, we took advantage of a favorable market window and successfully reprised our existing $426 million term loan, producing interest expense by approximately 51 basis points. Due to strong institutional demand, the reprising was oversubscribed and we were able to opportunistically raise a 50 million fundable add-on to the reprised term loan at par.

Matthew Kickert: Hi, this is Matthew Kickert for Parker. Thanks a lot for taking my questions. I guess we should start with the changes in the leadership that you mentioned this morning. Are there any expected changes to, you know, more than structure, specifically the go-to-market strategy moving forward?

Matthew Kickert: Hi, this is Matthew Kickert, I'm from Parker. Thanks a lot for taking my questions. I guess let's start with the changes in the leadership that you knocked this morning. Are there any expected, you know, changes to, you know, more than structure specifically the go-to-market strategy moving forward?

Nicolaas Vlok: Hi there, this is Nikolaas again, and thank you for the question. We don't anticipate any changes where we are.

Matthew Kickert: Hi there, this is Nikolaas again and thank you for the question.

Nikolaas: We don't anticipate any changes where we are.

Nicolaas Vlok: Chris is one of those rare individuals that you work with in your career that excels at a lot of things. And from a MeridianLink standpoint, he put us on a great path with our roadmap, our products, our platform, and our go-to-market organization. With Larry's background and skill set in banking and SaaS enterprise businesses at scale, I feel it's a great time for Chris to be spreading his wings and taking on a whole new challenge as the CEO of an... in an unrelated industry.

Speaker Change: Chris is one of those rare individuals that you work with in your career that

Larry Katz: During the first half of 2024, we returned 74.3 million of capital We have 61.3 million of repurchase authorization remaining. De-share buybacks are consistent with the capital allocation framework I articulated last quarter. As outlined, we will strategically repurchase our own shares when trading in a discount to intrinsic value.

Nikolaas: excels at a lot of things and from a MeridianLink standpoint he put us on a great path with our roadmap, our products, our platform and our go-to market organization.

Speaker Change: with Larry's background and skillset in banking and SaaS in the price of businesses at scale. I feel it's a great time where Chris is spreading his wings and taking on a whole new challenge as the CEO of A.

Larry Katz: Before going into more detail in Q2 results, I would like to share some context of the current macro environment. Today, we are managing our business through three headwinds, which we expect will normalize, but in the near term, are impacting our customers and constraining our growth. First, community banks and credit unions are facing lower deposit flows, post-COVID-era stimulus, which is way and on low and volume growth. During those stimulus years, FIs benefited from strong deposit inflows and invested in yield generating assets, including auto loans.

Nicolaas Vlok: And we wish him well, but also, we are well positioned with the leadership team in the go-to-market organization. Now, I want to highlight that Larry's role is larger than just go-to-market. It's basically the whole commercial part of the business, which will include our services and support, and customer success organizations. And the philosophy of the role that we've created is that it's a kind of full customer journey, the whole commercial journey that the customer engages with MeridianLink on.

Speaker Change: I'm related industry and we wish them well but also where well-positioned with the leadership 15 in the go to market organization.

Speaker Change: Now I want to highlight...

Speaker Change: Larry's role is larger than just go-to-market, it's basically the whole commercial part of the business which will include our services and support.

Speaker Change: customer success organizations and the philosophy on the role that we've created is it's a kind of a the full customer journey the whole commercial journey that the customer engages with Meridian Link On.

Larry Katz: Deposit flows have since slowed due to both contracting monetary policy and the availability of higher yielding alternatives, such as money market funds. Meanwhile, asset durations, such as auto loans, have extended. This has resulted in credit unions and community banks seen highly elevated loan-to-deposit ratios, which combined with weaker credit performance, has ledifies to tighten credit and lower origination volumes. OEM captives have stepped in to meet the auto financing gap in order to move inventory from dealer lots.

Nicolaas Vlok: And we as a team have expected efficiency gains by doing that. We think we will see them. And at this point in time, with Larry taking on the broader role and Elias coming in and the experience that he brings to the table, I don't anticipate the change we are kind of at a place where we really have made the changes, we've announced what we want to announce, and it's heads down, moving forward, executing.

Speaker Change: And we as a team have...

Speaker Change: expected efficiency gains by doing that we think we will see it and at this point in time with Larry taking on the broader role and Elias coming in and the experience that he brings to the table I don't anticipate

Speaker Change: for the change. We kind of at a place where we really have made the changes. We've announced what we want to announce and it sets down moving forward executing.

Larry Katz: We view this shift as temporary, but to date, we have not seen our customers participate pro-rata in the modest industry growth forecasted by industry sources. We expect that when rates start to come down, community banks and credit union balance sheets will normalize and unlock volume growth. We are starting to see early signs of improving quarter to quarter volume trends across our customer base.

Matthew Kickert: Understandable. That sounds good. And then secondly, there's been a downtick in customer accounts the past couple quarters. I wonder if you could give a little color on what the right mix is here going forward and how long you would expect these trends to continue.

Speaker Change: Understood, that sounds good. And then secondly, there's been a downtick in customer accounts the past couple quarters. I wonder if you could give a little color on what the right mix is here going forward and how long you would expect these trends to continue?

Larry Katz: Sure, Matthew, it's Larry. So we had a little more net churn in the quarter, but as you can see, it's slowing. And as I indicated last quarter, we expected it to slow, and it slowed a little bit. This quarter, if you look at the trailing 12 months, average net churn is about 14, and this was net 11.

Larry Katz: Second, use car affordability has yet to normalize back to pre-pandemic levels. Affordability of use cars continues to be out of reach for many due to higher prices and elevated financing rates. Higher used car prices have resulted from limited use car inventories post-the-COVID aerospike and use car demand. We expect it as higher new car inventories work their way to use car lots. Use car inventories will rise and prices will fall, though it may take several periods to see this impact on used car prices. We also expect affordability will improve with lower financing rates, but today financing rates remain elevated.

Speaker Change: I'm sure that there's Larry.

Larry Katz: So we had a little more net turn in the quarter, but as you can see it's slowing, and as I indicated last quarter we expected it to slow in a slow little bit this quarter if you look at the trailing.

Larry Katz: 12 months.

Larry Katz: Still with the same concentration that we talked about last quarter where it's heavily concentrated in the IMBs, mortgage brokers, and specialty finance. These are the smaller clients for whom, sometimes maybe they have a little distress, or maybe they're combining, or maybe in some cases, the MeridianLink One platform isn't the right fit for their needs, meaning we offer more capabilities than they're really able to take advantage of. So it will continue to slow, and in the coming quarters, it'll be lumpy. And one thing I might do.

Larry Katz: Average net turn is about 14 and this was net 11. Still with the same concentration that

Larry Katz: We talked about last quarter where it's heavily concentrated in

Larry Katz: the IMBs, mortgage brokers, specialty finance, you know, these are the smaller clients for whom, you know, sometimes maybe they have a little distress or maybe they're combining or maybe the, in some cases, MeridianLink one platform isn't.

Larry Katz: Third, mortgage unit volumes continue to be a generational lows. We are beginning to see improving mortgage volumes consistent with MBA forecasts, but volumes are still roughly 50% below 25-year averages. We expected mortgage volumes to improve with greater confidence and lower long term rates.

Larry Katz: It isn't the right fit for their needs meaning we offer more capabilities than they're really able to to take advantage of so it will continue to slow and over over the coming quarters it'll be lumpy and you know one thing I might I might

Larry Katz: Despite these macro headwinds, our business model has performed quite well and proven to be resilient in part due to our hybrid, minimum, and consumption pricing model. We continue to manage what we can control generating healthy demand from new and existing customers while proactively investing in advance of a return to stronger bodies.

Larry Katz: In addition to customer count, which is important to look at, I think it's also important to look at ARR per customer, and we disclose ARR, and we disclose customer counts. And as you look at that, the ARR per customer for lending solutions is up and to the right, and it is for total as well, and that's really a function of a couple things. It's part of our expansion strategy, right? So as we cross all the additional modules, revenue goes up.

Speaker Change: In addition to customer account, which is important to look at, I think it's also important to look at ARR per customer account.

Larry Katz: for customer and we disclose ARR and we disclose customer accounts and if and and and you know as you look at that the ARR

Larry Katz: Turning now back for a few two performance and starting with gap revenue. Looking first at revenue by source. Total gap revenue growth was 4% year over year driven by 3% growth in subscription revenue, 6% growth in services revenue, and 20% growth in other routes. Subscription growth was positively impacted by a one-time reduction in Q223 revenue of $2.3 million, which related to a commercial dispute of a contract acquired via a past acquisition.

Larry Katz: per customer for lending solutions is up into the right, and it is for total as well.

Larry Katz: and that's really a function of a couple things. It's part of our expansion strategy, right?

Larry Katz: As we cross the traditional modules, revenue goes up, it's also our target, target mix towards higher revenue customers, the larger customers.

Larry Katz: It's also our target mix towards higher revenue customers, the larger customers, and it's also a function of some of the churn that we're talking about here, those are smaller dollar customers leaving the platform because they're smaller clients and they're not as strong a fit for our platform. So I think that's an important way to think about it as well, ARR per customer.

Larry Katz: And it's also a function of some of the churn that we're talking about here. Those are smaller dollar customers and exiting the platform because they're smaller clients, and they're not as strong a fit for our platform. So I think that's an important.

Larry Katz: Adjusting for this one-time revenue reduction in the prior year period, total gap revenue grew 1% year-over-year and subscription revenue was flat year-over-year. Subscription revenue, which accounts for 84% of total revenue, included higher revenue from strong ACB release offset by lower revenue from lower volumes. Further breaking down total revenue by solution type, total lending software revenue growth was 11% year-over-year and accounted for nearly 78% of revenue. Adjusting for the one-time revenue reduction in Q223, lending software revenue growth was 6%.

Larry Katz: It's an important way to think about it as well ARR Protestemy.

Matthew Kickert: Terrific. Thank you very much.

Operator: Your next question comes from Saket Kalia from Barclays. Please go ahead.

Speaker Change: Terrific, thank you very much.

Speaker Change: Your next question comes from Saket Kalia from Barclays. Please go ahead.

Saket Kalia: Okay, great. Hey, Nicholas. Hey, Larry.

Saket Kalia: Okay, great. Hey, Larry, thanks for taking my questions here.

Saket Kalia: Thanks for taking my questions here. Nicholas, maybe the first question for you is, within the consumer lending part of the business, non-mortgage consumer lending, I think we've talked a lot about used cars and the automotive market. Can you just remind us how big of a portion of that business comes from used cars? And then also, what are the second and third largest chunks of volume that maybe we should be tracking to sort of see the upswing as rates go down? Does that make sense?

Larry Katz: Non-mortgage lending revenue growth was 14%, or 9% adjusting for the one-time Q223 revenue reduction and accounted for 90% of lending software revenue. This growth was largely attributable to strong ACB release from existing and new customers. Mortgage related revenue within lending software solutions declined 13% year-over-year and accounted for the remaining 10% of lending software revenue. This decline year-over-year is attributable to customer churn and strengthen the year-over-go quarter. Mortgage volumes in a quarter were up year-over-year, but it will take time for volumes to push more customers above their committed minimums.

Nicolaas Vlok: Nicolaas Vlok, maybe the first question for you is, you know, within the consumer lending part of the business, non mortgage consumer lending. You know, I think we've talked a lot about sort of the use cars and the automotive market, and you just remind us how big of a portion of that business.

Speaker Change: It comes from kind of used cars, and then also, what's sort of the second and third largest chunks of volume that maybe we should be tracking to sort of see the upswing as rates go down? Does that make sense?

Larry Katz: Turning to data verification software solutions, revenue declined 13% year-over-year and accounted for 22% of total revenue. This decline was attributable to a 22% decrease in mortgage-related revenue, which represented 55% of total verification software revenue in Q2. This decline in mortgage-related data verification revenue was driven by the downsell of a single large customer. Moving to profitability, adjusted growth profit was 56.8 million or a 72% margin. This represents 230 basis points of improvement in operating leverage year-over-year driven by increased productivity of our services team.

Nicolaas Vlok: Wait a second. Yes, it does. So kind of just the big picture first, the non-mortgage consumer lending component, auto lending is about half of the consumer lending business. Of that half, about 70% of the volume and revenue is tied to pre-owned, where 30% or so is tied to new vehicles. Cox Automotive, J.D.

Nicolaas Vlok: 2nd, yes, it does.

Nicolaas Vlok: So, kind of just big picture first, the non-mortgage consumer lending component, auto lending is about half of the consumer lending business.

Speaker Change: Of that half, about 70% of the volume and revenue is tied to pre-owned, where 30% or so is tied to new vehicle.

Nicolaas Vlok: Power and MANIME are great sources for data on both. If you also look at MANIME, the MANIME index, you'll find good pre-owned data around the MANIME environment. You can find good information, kind of like the New York Federal Reserve in the past that published consumer data kind of with some focus on auto, you can also find in the credit bureaus like Experian. I know they have some data out there that's also quite interesting in terms of consumer sentiment and consumer behavior, kind of what they see from a consumer credit standpoint tied to auto lending.

Speaker Change: Pop sort of motor, Jenny Power, our great sources for data on both, if you also look at it.

Speaker Change: Mannheim, in the Mannheim index you'll find good pre-owned data around the Mannheim environment.

Larry Katz: Turning to operating expenses, sales and marketing expense was 9.6 million, 12% of revenue, up 29% year-over-year. This increases due to investment in our go-to-market team and higher costs for meridian-linked live our annual user event. R&D expense was 7.2 million, 9% of revenue, and the decline 26% year-over-year, reflecting continued cost discipline, including lower staffing due to our previously announced restructuring. GNA expense increased 7% year-over-year to 9.8 million or 12% of revenue. Adjusted evita was 31.8 million or a 40% margin.

Nicolaas Vlok: You can find good information, kind of the New York Federal Reserve and the past that published consumer data kind of with some focus on auto.

Nicolaas Vlok: You can also find in the credit bureaus like Experian. I know they have some data out there that that's also quite interesting in terms of consumer sentiment, consumer behavior kind of.

Nicolaas Vlok: One of where they see from a consumer created standpoint, tied to order lending, those are also what I would point you to and which we also track and use for our own forecasting in the quarter.

Nicolaas Vlok: Those are all sources I would point you to which we also track and use for our own forecasting in the quarter. Um, I think the next part of your question was volumes. Order is clearly, from a volume standpoint, a pretty big factor for us.

Nicolaas Vlok: I think the next part of your question was volumes.

Larry Katz: This represents 440 basis points of improvement in operating leverage year-over-year and reflects our continued cost discipline while strategically investing in our go-to-market team to drive growth. Finishing with cash flow and leverage, we ended the second quarter with cash and cash equivalence of 93 million and increased of 30.7 million from Q1. This increase was driven by our term loan upsizing net or share repurchases. Total debt was 475.1 million and excluding debt issuance costs and cash and cash equivalence. Next debt was 377. Cacheflow from Operations was 14.4 million or 18% of revenue and free Cacheflow was 12.4 million or 16% of revenue.

Nicolaas Vlok: Order is clearly from a volume standpoint a pretty big factor for us.

Nicolaas Vlok: Thereafter, it kind of breaks down somewhat more equally; there's not any consumer loan channel that I would say stands out with kind of the same light shine on it than auto. In our business, personal loans, credit cards, HELOCs are all pretty buoyant loan channels for us. There's less data around personal loans in the market. You would kind of need to look at the stage and some bank data that you would need to track and follow.

Nicolaas Vlok: Thereafter it kind of breaks down somewhat more equally, there's not any

Nicolaas Vlok: consumer loan channel that I would say stand out with kind of the same light shine on it than than auto

Nicolaas Vlok: You can, in our business...

Nicolaas Vlok: personal loads, credit cards, helox, all pretty buoyant load channels for us.

Nicolaas Vlok: There's less data around personal loans.

Nicolaas Vlok: In the market, you would kind of need to look at...

Nicolaas Vlok: through stage and some bank data that you would need to track and follow.

Larry Katz: I'll now turn to guidance for Q3 and updated guidance for the full year of 2024. We are encouraged by our first half performance, which was driven by ACV release and disciplined execution, and we expect those to be the drivers of performance in the second half as well. Volumes were a headwind to growth in the first half, and though the interest rate outlook is improving, we expect the impact of anticipated great cuts on our second half volumes and revenue to be gradual.

Nicolaas Vlok: Credit cards, there's more data, generally speaking. Also, the credit bureau has published data on a kind of credit card, call it Matrix. And I would say you can find a decent amount of data around MBA and other mortgage industry forecasting environments.

Nicolaas Vlok: call it matrix

Nicolaas Vlok: and I would say you can find a decent amount of data around MBA and other mortgage industry forecasting environments.

Operator: I would have to ask you to play for Notre Dame, sir.

Larry Katz: Our current consumer lending volume trends do not yet point to visible signs of higher growth, and in line with lower growth expectations across industry sources, we expect that it will take time for a series of great cuts to accelerate growth. We view rate cuts as a leading indicator of higher consumer volumes, though as I discussed earlier, community bank and credit union loan deposit ratios remain elevated, and used auto affordability has not yet normalized.

Saket Kalia: Very appreciated, by the way. Larry, maybe for my follow-up for you, understanding that, and by the way, congrats on the transition. I mean, maybe just focusing on the go-to-market part of the role, understanding that it's still very early days, what are some of the strengths and maybe opportunities that you think about within the go-to-market organization as you think about MeridianLink over the next three to five years?

Nicolaas Vlok: Scott, I've got to help you with life for no danger.

Scott: Yeah, very

Matthew Kickert: Very appreciated, by the way. Larry, maybe for my follow-up for you, understanding that, and by the way, congrats on the transition. I mean, maybe just focusing on the go-to-market part of the role, understanding that it's still very early days.

Larry Katz: Mortgage industry sources forecast volumes to improve in the second half, though more modestly than previously forecasted. In mortgage, we expect the impact of these higher volumes and revenue to be modest due to committed minimums. Within this macro, we're focused on the things within our control, including discipline cost management, and stockholder return. We continue to prioritize winning new logos and cross sell mandates, releasing an ACV to revenue, and innovating Marinane Link 1 to meet evolving consumer lending needs.

Speaker Change: What are some of the strengths and maybe opportunities that you think about within the good market organization as you think about Meridian Link over the next three to five years?

Larry Katz: Yes, thank you. Look, Chris built a really strong organization here with a great team. And so I think we've got the strategy pointed in the right direction. So I think the starting place is in a really, really good place. You know, this is going to be the first time that we put all of the customer-facing teams, meaning sales and marketing and service and full customer care, the entire customer journey under one leadership.

Larry Katz: Yeah, thank you.

Larry Katz: Chris built a really strong organization here with a great team and and so I think we've got the strategy pointed in the right direction so I think the starting place is in a really really good place.

Speaker Change: This is going to be the first time that we put all of the customer-facing teams, meaning sales and marketing and service and full customer care, the entire customer journey under one leadership.

Larry Katz: With that, I'll share our updated guidance. For the third quarter, estimated total gap revenue is expected to be between 78 and 81 million compared to 76.5 million for the same period in 2023. This represents an estimated year-over-year change of two to six percent. For the full year 2024, we expect total gap revenue to be between 312 million and 318 million compared to 303.6 million for the full year 2023. This represents an estimated increase of three to five percent year-over-year. We expect the mortgage market to contribute approximately 20 percent of gap revenue for the third quarter and for the full year 2024.

Larry Katz: And I think there's I think that's important at this stage of growth. I think it sets us up for the right next, you know, for the next for the next, the next chapter here, because I think it's really about. It's about delivery for the customer end to end and connecting all the way from marketing through delivery of services. And I think that's going to be a meaningful opportunity for us to set up to scale, become more efficient, and frankly, just deliver better customer experiences, which drive, ultimately, better execution, better cross-sell, you know, revenue growth, etc.

Larry Katz: I think that's important at this stage of growth, I think it sets us up for the right next, you know, for the next, for the next, for the next chapter year. Because I think it's really about...

Nicolaas Vlok: It's about delivery for the customer, end-to-end, and connecting all the way from marketing through delivery of services. And I think that's going to be a meaningful opportunity for us to set us up to scale, become more efficient, and frankly just deliver.

Nicolaas Vlok: better customer experiences, which drive ultimately better execution, better cross-sell, revenue growth, etc. So that's going to be a meaningful area of focus for me. And I think the connectivity that we have end-to-end in the business with

Larry Katz: To provide more color around the drivers of our total revenue, our mortgage-related revenue guidance includes declining year-over-year revenue, despite improving volumes, as it will take time for the recovery and volumes to push our customers above their committed minimums. Additionally, we continue to realize the impacts of downsell of a single large MCL customer and customer turn. For our non-morgant-related data verification software solutions, we expect to return to low single-digit growth year-over-year as the employment screening market reacts to job openings and later turnover. For non-morgant lending revenue, we expect mid-to-high single-digit growth year-over-year driven primarily by ACZ release.

Larry Katz: So that's going to be a meaningful area of focus for me, and I think the connectivity that we have end-to-end in the business with Elias as well is going to really be a great partnership to help drive that entire commercial execution to scale this business.

Larry Katz: with Elias as well as going to really be a great partnership to help drive that entire commercial execution to discuss business.

Saket Kalia: All super helpful. Thanks, guys.

Operator: Your next question comes from Alex Sklar from Redmond. James, please go ahead.

Speaker Change: All super helpful. Thanks, guys.

Speaker Change: A year and next question, come from Alex Clar from Redmond James, please go ahead.

Alex Sklar: Great, thank you. Larry, just following up on one of your answers earlier to Andrew's question around the success you're having on the go-to-market side, I just wanted to ask if you could provide some more color in terms of what you're seeing from the Salesforce in terms of productivity, and how you view the opportunity to maybe invest more behind that success, or if you think that the Salesforce is about the right size right now. Thanks.

Alex Clar: Great, thank you. Larry, just following up on one of your answers earlier to Andrew's question around the success you're having on the go-to-market side, I just wanted to ask if you could provide some more color in terms of what you're seeing from the sales force in terms of productivity and how you're viewing the opportunity to maybe invest more behind that success.

Larry Katz: Now focusing on our adjusted EBITDAG guide. Third quarter estimated adjusted EBITDAG is expected to be between 30 million and 33 million, representing adjusted EBITDAG margins of approximately 40 percent at the midpoint. For the full year 2024, we expect our adjusted EBITDAG range to be between 123 million and 128 million, representing adjusted EBITDAG margins of approximately 40 percent at the midpoint.

Alex Sklar: or if you think the sales force is about the right side right now, thanks.

Larry Katz: Thanks for the question. It's one of the areas I'm going to focus on. Today, we've got really strong sales efficiency. If you just look at our sales as a percentage of revenue compared to any metric, we're efficient. I think we're well-sized right now for our strategy. We are seeing a bit more, um, you know, with the turning of expectations around rates. There is a bit more demand, of inbound demand, as customers look at accelerated growth and kind of continue to open their, you know, continue to get more excited about further investment in the business.

Speaker Change: I'll see you in the next video, and I'll see you in the next video.

Larry Katz: Thanks for the question.

Larry Katz: Point. I'll finish where I started today.

Larry Katz: So it's one of the areas I'm going to focus on. Today, we've got really strong sales efficiency. If you just look at our sales as a percentage of revenue compared to any metric, we're efficient. I think we're well-sized right now for our strategy. We are seeing a bit more

Larry Katz: I'm very excited to take on the new challenge as President of the company and look forward to engaging with our customers and our partners to lead the next leg of MeridianLink's growth.

Operator: With that, Nicholas and I are happy to take any of your questions and I'll turn it over to the operator. Thank you, ladies and gentlemen. If you'd like to ask a question, please press star one to which right question, press star two. One moment please for your first question.

Larry Katz: You know what's the turning of...

Larry Katz: of expectations around rates. There is a bit more of demand, of inbound demand, as customers look at

Andrew Schmidt: Your first question comes from Andrew Schmidt from City. Please go ahead. Hey guys, thank you for taking my questions this evening. It's good to see the mid to upper single digit outlook for the non mortgage lending software solutions piece. Maybe you just jeweled down a little bit on that. It sounds like a lot of that is driven by ACV release, which probably goes back to better implementation efficiency. But beyond that, any other drivers we should consider and I think we think about filling the tank in terms of bookings, pipeline there. How should we think about that? Thank you guys. Thanks, Andrew.

Larry Katz: accelerated growth and continue to open their, you know, continue to get more excited about further investment in the business, so I do think there's a little bit more front end demand.

Larry Katz: So I do think there's a little bit more front-end demand, but I think our team is well-scaled at this point, and we'll want to look at balancing that across the various product groups and across new and existing customers and things like that. But I think it's a very, my current view walking into the seat is that it's well-sized and well-scaled, and we'll share more on future calls.

Larry Katz: But I think our team is well-scaled at this point, and we'll want to look at balancing that across.

Larry Katz: You know across the various product groups and across new or existing customers and things like that, but I think it's a very my current view walking into the seat is that it's it's it's well, it's well-sized well-scaled and and And we'll share more on future calls

Alex Sklar: Okay, perfect. And then I don't know who wants to take this one, Nicholas or Larry, but just in terms of the mortgage cross-sell into your consumer lending base, I know it's been a top cross-sell booking for several quarters. Can you talk about that penetration of the consumer base in terms of a logo or an ARR opportunity? And then any commonality in what you're replacing?

Larry Katz: It's Larry. So you're right. It's so ACV is driving that second half, the second half non lending, non lending, the non mortgage lending software growth server that it is what's driving the growth is bookings and we've had really strong pipeline and strong bookings through last year and through the beginning of this year. And it's released that to ACV. There's a little bit of, as you said, services, you know, executing services more efficiently and reducing lead times is a little bit of that, but it's really a function of our success on the go to market side and that translate in from booking through implementation and revenue. Setting that of course, as I mentioned is, you know, a little bit of volume headwinds, but that will, you know, we're expecting that to to gradually recover. Thank you Larry.

Alex Sklar: Okay, perfect. And then I don't know who wants to take this one, Nicholas or Larry, but just in terms of the mortgage cross-sell into your consumer lending base, I know it's been a top cross-sell booking for several quarters.

Alex Sklar: I know you called out the win this quarter, Nicholas. Thanks. Yeah.

Speaker Change: Can you just talk about that penetration of the consumer base in terms of a logo or an ARR opportunity? And then any commonality in what you're replacing? I know you called out the win this quarter, Nikolaas. Thanks.

Nicolaas Vlok: Yeah, we continue to see demand in our depository taking customer base, and we are also fairly deliberate in providing focus in that specific market segment. We view the cross-sell opportunity with MeridianLink, one, as the platform, as significant; the debt wallet optimization playbook around that, where you can have a holistic view across the consumer's debt wallet and make decisions about what's in the best interest of the whole debt wallet, is responding with our customers. The pipeline continues to build.

Nicolaas Vlok: Yeah, we continue to see demand in our depository taking customer base and we also are fairly deliberate in providing focus in that specific market segment.

Nicolaas Vlok: We view the cross-sell opportunity with MeridianLink, one, as the platform.

Nicolaas Vlok: is significant.

Nicolaas Vlok: The Debt Wallet Optimization playbook around that where you can have a holistic view across the consumer's debt wallet and make decisions what's in the best interest of the whole debt wallet.

Andrew Schmidt: And maybe I can switch to more of a product question. You know, there is a real scarcity of accounting opening solutions out there and you have one of them. And as you articulated deposit gathering is in high demand from FI.

Nicolaas Vlok: Deal momentum from our perspective is solid. Part of the reason why we are engaging with our customers and seeing the success we're seeing there is that folks want to get in front of the expected mortgage volume return now while it's still a slower period for them before they start seeing more activity. We compete against a broad array, I would say above us, you can see Ice Mortgage, which is the old LMA, and then there's probably a half dozen point solutions, which are not integrated as a platform like we are, that varies from legacy, more on premise, to cloud-based solutions.

Nicolaas Vlok: is resonating with with our customers.

Nicolaas Vlok: So maybe you talk about, you know, demand trends that you're seeing there for account opening and then, you know, if there's any additional investment that's going into that product to to improve it. Thanks a lot guys. Hi Andrew. And thank you for the question. It's necklace. Yes, we seem demand for account opening in our customer base and also in new logo. We have our own account opening solution, which we think is a good fit to the market and we continue to market it as a standalone, but more importantly as a key component of meridian link one.

Nicolaas Vlok: The pipeline continues to build. Deal momentum, from our perspective, is solid.

Nicolaas Vlok: Part of the reason why we are engaging with our customers and seeing the success we seeing there is

Nicolaas Vlok: Folks want to get in front of the expected mortgage volume return and they're retooling now, while it's still a slower period for them before they start seeing more activity.

Nicolaas Vlok: We compete against a broad array. I would say above us you can see Ice Mortgage, which is the old LMA.

Nicolaas Vlok: and then there's probably a half dozen either point solutions which is not integrated as a platform like we are that varies from legacy more on-premise to

Nicolaas Vlok: Because once you start using the platform, the consumer span is the whole platform and our philosophy as it starts for the onboarding at the account opening time frame. We also have account opening partnerships with folks out there that may have a more niche solution or a specific offering that a customer would like to implement. So we offer integration into meridian link one through our apis, which continues to expand our ecosystem. And also have us participate that way in terms of product investment.

Nicolaas Vlok: And then there are also some cores with what I would call more legacy-based solutions in the mortgage space. So probably about a dozen or so competitors that you see in different segments or at different times, but none with the platform approach across the full consumer debt wallet.

Nicolaas Vlok: cloud-based solutions, and then there's also some cores worth

Nicolaas Vlok: what I would call also more legacy-based solutions in the mortgage space. So probably about a dozen or so competitors that you see at

Nicolaas Vlok: We continue to invest in user experience and the digital front end. Making it faster and easier to open up an account and also include partner integrations that would automate the process more think of fraud. Think of kind of ID verification, any ability to tear up where there is not a lot of hand touching it, but becoming digital and touchless. And basically as the consumer enters information, it becomes immediately verifiable. And when the button gets hit, it's not a long wait for the process to conclude.

Alex Sklar: Okay, I appreciate that color, Nikolaas. Maybe just one clarification on that. And I think in the past, you've said like the X percentage of your consumer customers take mortgages. Has that meaningfully marched up? Or is it still something that's well north of kind of 70 plus percent opportunity in green space? Thanks.

Alex Sklar: [inaudible]

Alex Sklar: Okay, I appreciate that color, Nikolaas. Maybe just one clarification on that. I think in the past you've said like the X percentage of your consumer customers take mortgage. Is that mediantly marched up or is it still something that's well north of kind of 70 plus percent opportunity in green space? Thanks.

Nicolaas Vlok: Alex, I don't recall the specific reference to 70%, but from my perspective, there's a real sweet spot and a sizable sweet spot in our customer base. If it goes towards the lower end, they tend not to be in mortgage. They need to have a little bit more of a balance sheet behind them to be in the mortgage business. I would venture to say somewhere between a third and a half of our customers have the right to participate in the mortgage market, based on my perspective. And we are seeing good engagement with that subset today. All right, great. Thank you.

Nicolaas Vlok: Alex, I don't recall the specific reference to 70%, but from my perspective there's a real sweet spot and a sizable sweet spot in our customer base.

Nicolaas Vlok: So from our perspective, we think of our solution as a great fit combined with meridian link one. We also provide flexibility through our partner marketplace now API set. And we continue to invest digital front end workflow automation and partner integrations that would speed up the whole account opening process. Thank you very much, Nicholas. You're welcome.

Nicolaas Vlok: If it goes towards the lower end, they tend to not...

Speaker Change: be in mortgage that you they need to have a little bit more of a balance sheet behind them to be in the mortgage business

Nicolaas Vlok: I would venture out to say somewhere between a third and a half of our customers have the right to play in the mortgage market based on my perspective and we are seeing good engagement with that subset today.

Operator: Your next question comes from Koji Ikeda from Bank of America. Please go ahead. Koji from Bank of America, your line is now open. Let's move Koji to the back and move on to Spencer. Your next question comes from Spencer LaBeouf from BTIG. Please go ahead. Hey guys, this is Spencer on-

Operator: All right, great, thank you.

Matthew Kikkert: Your next question, come from Parker Lane, from Steeple, please go ahead. This is Matthew Kikkert, I'm from Parker. Thanks a lot for taking my questions.

Operator: Your next question comes from Koji Ikeda from Bank of America. Please go ahead.

Operator: you

Nicolaas Vlok: I guess to start with the changes in the leadership that you're not this morning, are there any expected changes to, you know, more than structure specifically to go to market strategy moving forward? Hi, either this is Nicholas again and thank you for the question. We don't anticipate any changes where we are. Chris is one of those red individuals that you work with in your career that excels a lot of things and from a MeridianLink standpoint you put us on a great path with our roadmap, our products, our platform and our go-to-market organization with Larry's background and skill set in banking and SaaS enterprise businesses at scale.

Operator: Koji from Bank of America, your line is now open.

Operator: you

Operator: [inaudible] Nicolaas Vlok, Nicolaas Vlok,

Operator: Hey, guys. This is Spencer on for Matt VanVliet from BTIG.

Operator: Your next question comes from Spencer LeBov from BTIG, please go ahead.

Operator: Hey, guys, this is Spencer on for Matt Van Vleet from BTIG. Just had a couple questions for you guys. You guys kind of hinted at earlier, you guys are expecting demand to obviously trend up with the rate cuts. But if the rate cuts happen in the Senate September, you know, where shall we expect benefit? Should we expect more of a benefit? The mortgage side of lending or the non mortgage, like auto and consumer. Thank you.

Spencer LaBeouf: Just had a couple of questions for you guys. As you kind of hinted earlier, you guys are expecting demand to obviously trend up with the rate cuts. But if rate cuts happen as soon as September, where should we expect the benefits? Should we expect more of a benefit on the mortgage side of lending or the non-mortgage side of lending, like auto and consumer? Thank you.

Larry Katz: Thanks, Spencer, for the question. This is Larry.

Nicolaas Vlok: I feel as a great time where Chris is spreading his wings and taking on a whole new challenge as the CEO of an unrelated industry and we wish him well but also we are well positioned with the leadership team in the go-to-market organization. Now I want to highlight, Larry's role is larger than just go-to-market. It's basically the whole commercial part of the business which will include our services and support customer success organizations and the philosophy on the role that we've created is it's a kind of a the full customer journey, the whole commercial journey that the customer engages with MeridianLink time and we as a team have expected efficiency gains by doing that.

Larry Katz: Thanks, Spencer, for the question. This is Larry. If I heard you right, you're asking where, if rates come down, where are we going to see more of a benefit in the immediate term, whether it's mortgage or auto?

Larry Katz: If I understand you right, you're asking where if rates come down, where are we going to see more of a benefit in the immediate term, whether it's mortgage or auto? You know, we view rates as an early indicator of demand. It's not kind of a one-to-one ratio of impact, but it's clearly a leading indicator that volumes will come, and this is probably why we view it as a more gradual return based on rates.

Larry Katz: Um, you know, we view, we view...

Larry Katz: Race is an early indicator of demand. It's not kind of a one-to-one, you know, one-to-one.

Larry Katz: ratio of impact and

Larry Katz: But it's clearly leading into care that violence will come in and this is probably why we view it as more gradual return based on rates.

Larry Katz: I'd say in the auto business, rates are going to help with affordability, but truthfully, as rates have started to come down, we've not seen a change in affordability in our core market, meaning in used cars. And so that's driven by a bunch of the dynamics that I shared in my prepared remarks.

Larry Katz: You know, rates are going to help with affordability, but truthfully, as rates have started to come down...

Nicolaas Vlok: We think we will see it and at this point in time with Larry taking on the broader role and Elias coming in and the experience that he brings to the table I don't anticipate further change we we kind of at a place where we really have made the changes we've announced what we want to announce and it takes down moving forward executing.

Larry Katz: We've not seen a change in affordability in our core market, meaning in-use car, and so that's driven by a bunch of the dynamics that I shared in my prepared remarks.

Larry Katz: And that's going to be more a function of used car prices and rates and balance sheet liquidity and community banks and credit unions. So I think that as rates come down, it clearly will help, but I think it's going to take some time for that to kind of work its way through to real volume growth. And I think that's what you're seeing both in industry forecasts as well as in our guide as well.

Larry Katz: And that's going to be more a function of used car prices and rates and balance sheet liquidity and community banks and credit unions. So I think that as rates come down, it clearly will help.

Matthew Kikkert: Understood that sounds good and then secondly there's been a down-taking customer accounts the past couple quarters wondering if you could get a little color on what the right mix is here going forward and how long you would expect these trends to continue.

Larry Katz: But I think it's going to take some time for that to kind of work its way through, you know, into real volume growth. And I think that's what you're seeing both in our industry forecast as well as in kind of our guide as well. On the mortgage side, on the other hand, we are seeing real responsiveness.

Larry Katz: On the mortgage side, on the other hand, we are seeing real responsiveness to rates. And I saw some articles today about how rates are at recent lows even today. And you will see rates coming down, and I think that will drive volume. And we're starting to see some of that, and you're seeing some of that growth in the mortgage business and mortgage forecasts. But that said, As you look at the distribution of mortgages out there by rate, we're not really going to see a big pickup in volume on the refi side until you kind of get into the five handles or below.

Larry Katz: I'm sure Matthew is Larry. So we had a little more net churn in the quarter but as you can see it's slowing and as I indicated last quarter we expected it to slow and it slowed a little bit. This quarter if you look at the trailing 12 months average net churn is about 14 and this was net 11 still with the same concentration that we talked about last quarter where it's heavily concentrated in the IMB's mortgage broker especially finance you know these are the smaller clients for whom you know sometimes maybe they have a little distress or maybe they they're they're combining or maybe the in some cases Meridian Link platform isn't the right fit for their needs many we offer more capabilities than they're really able to to take advantage of so it will continue to slow and over over the coming quarters it'll be lumpy and you know one thing I might in addition in addition to customer account which is important to look at I'd also I think it's also to look at important look at ARR per customer and we disclose ARR and we disclose customer accounts and and and you know as you look at that the ARR per customer for lending solutions is up into the right and it is for total as well you know and that's really a function of a couple things it's a it's part of our expansion strategy right so as we as we cross all additional modules revenue goes up it's also our target target mix towards higher higher revenue customers the larger customers and it's also a function of some of the churn that we're talking about here that those are smaller dollar customers and exiting the platform because they're they're not a they're smaller clients they're not as they're not as strong a fit for our platform so it's so I think that's an important important way to think about it as well ARR per customer Thank you very much.

Larry Katz: I saw some articles today about how rates are at recent lows even today.

Larry Katz: and you will see rates coming down and I think that will drive volume and we're starting to see some of that and you're seeing some of that growth in the mortgage business and the mortgage forecast. You know what that said?

Larry Katz: There's...

Larry Katz: as you look at kind of the distribution of mortgages out there by rate

Larry Katz: We're not really going to see big pickup and volume on the refi side until you get into the five handles or below. That's where the real, you know, kind of the bulk of the mortgages out there are.

Larry Katz: That's where the real bulk of the mortgages out there are, and you'll start to see some pickup in purchase, perhaps, as rates start to come down. But I think it's going to take some time before we start to see some acceleration, but I think it's really going to take some time for rates to be lower until we really see that re-acceleration.

Larry Katz: and you'll start to see some pickup in...

Larry Katz: In purchase, perhaps as rates start to come down. But I think it's going to take some time until we'll start to see some acceleration, but I think it's really going to take some time for rates to be lower until we really see that re-acceleration.

Spencer LaBeouf: Yeah, thank you so much for that response. I guess I have just one more question, you know, if you guys can just provide some more color on how sales trends are differing, you know, I guess, versus banks versus credit unions and, you know, maybe also new customers versus existing customers. Thank you.

Spencer LaBeouf: Yeah, thank you so much for that response. I guess I just have one more question. If you guys can just provide some more color on how sales trends are differing, I guess, versus banks, versus credit unions, and maybe also new customers versus existing customers. Thank you.

Operator: I apologize, but the audio didn't come through very clearly. Can you just repeat that question? Yeah, guys.

Operator: i

Speaker Change: I apologize, but the audio didn't come through very clearly. Can you just repeat that question? Yeah, guys, can you hear me now or no?

Spencer LaBeouf: Yeah, guys, can you hear me now or not? Yes. All right. Yeah. Can you just provide some color on how sales trends are differing with banks versus credit unions and also with existing customers versus new logos? Thank you.

Spencer LaBeouf: Yes. All right, yeah. Can you just provide some color on how sales trends are differing with banks versus credit unions and also with existing customers versus new logos? Thank you.

Nicolaas Vlok: Sounds good. Existing versus new, I think is the best place to start. On the new logo side, it's a slower market from a enterprise sale deal closing cycle standpoint. And it has been, I would say, probably for over a year, year and a half now.

Nicolaas Vlok: Sounds good.

Nicolaas Vlok: Existing versus new I think is the best place to start.

Nicolaas Vlok: On the new logo side, it's a slower market from a enterprise sale deal closing cycle standpoint, and it has been, I would say, probably for over a year, year and a half now.

Nicolaas Vlok: We are developing strong pipeline. We continue to build the book on new logos and new logo pipeline. My expectation is we're going to see, Somewhat of an improvement in the back half of this year into 25 around new logo wins and new logo pipeline, On cross-sell, where existing customers continue to invest into MeridianLink One as a platform, that is strong, and I would say strong to very strong, as customers already made the investment and they now want to get more efficiency or more benefit from their investment into the platform, um Between credit unions and banks, credit unions today roughly makes up two thirds of our depository taking customer base and banks one third.

Nicolaas Vlok: We are developing strong pipeline. We continue to build a book on new logos and new logo pipeline. My expectation is we're going to see...

Saket Kalia: Hey, here next question comes from Saket Kalia from Barclays, please go ahead. Okay, great. Hey, Nicholas. Hey, Larry. Thanks for taking my questions here. Maybe the first question for you is, within the consumer lending part of the business, non-mortgage consumer lending, we've talked a lot about use cars in the automotive market. Can you just remind us how big of a portion of that business comes from use cars? And then also, what sort of the second and third largest chunks of volume that maybe we should be tracking to sort of see the upswing as rates go down?

Nicolaas Vlok: somewhat of an improvement in the back half of this year into 25 around new logo wins and new logo pipeline.

Nicolaas Vlok: On CrossSell, where existing customers continue to invest into MeridianLink ONE as a platform,

Nicolaas Vlok: That is strong, and I would say strong to very strong.

Nicolaas Vlok: as customers already made the investment and they now want to get more efficiency or more benefit from their investment into the platform.

Nicolaas Vlok: Between credit unions and banks, credit unions today roughly makes up two-thirds of our depository taking customer base and banks one-third. There's probably a somewhat larger new logo opportunity just purely based on the numbers and size.

Saket Kalia: Does that make sense? Hey, Saket, yes, it does. So kind of just big picture first, the non-mortgage consumer lending component, auto lending is about half of the consumer lending business. Of that half, about 70% of the volume and revenue is tied to pre-owned with 30% or so is tied to new vehicle. Cox or a motor of JD power are great sources for data on both. If you also look at the man I'm index, you'll find good pre-owned data around the man I'm all men out, men I'm environment.

Nicolaas Vlok: There's probably a somewhat larger new logo opportunity just purely based on the numbers and size. But I would say, outside of, I can't really say there's a significant difference in what they are buying or how they are buying it. I think it's more based on the solution that they are looking at and what they are solving, and there are more similarities between the two than differences. I think maybe on the banking side, I can highlight compliance.

Nicolaas Vlok: Um, but uh, I would say...

Nicolaas Vlok: outside of, I can't really say there's a significant difference in what they're buying or how they're buying. I think

Nicolaas Vlok: It's more based on the solution that they are looking at and what they are solving and there's more similarities between the two than differences.

Nicolaas Vlok: I think there's more conversations with banking prospects and banking clients on certain compliance requirements. But outside of that, I think both are starting to improve. And I expect both new logos to continue on the bank and credit union sides to strengthen back out this year into next year. Thank you very much. Your next question comes from Chris Kennedy from...

Nicolaas Vlok: I think maybe on the banking side I can highlight compliance. I think there's more conversations with banking prospects and banking clients on certain compliance requirements. But outside of that, I think both are starting to improve and I expect...

Saket Kalia: You can find good information kind of the New York Federal Reserve and the past that published consumer data kind of with some focus on auto. You can also find in the credit bureaus like experience, I know they have some data out there that that's also quite interesting in terms of consumer sentiment consumer behavior kind of. What they see from a consumer credit standpoint tied to auto lending, those are all sorts that I would point you to in which we also track and use for our own forecasting in the corner.

Nicolaas Vlok: both new logos to to continue on bank and credit union side to to strengthen

Nicolaas Vlok: back out this year into next year.

Operator: Your next question comes from Chris Kennedy from William Blair. Please go ahead. Yeah, good afternoon. Thanks for taking the question.

Operator: Thank you very much.

Speaker Change: Your next question comes from Chris Katzidi from William Blair, please go ahead.

Chris Kennedy: Yeah, good afternoon. Thanks for taking the question. I mean, clearly, the macro has been a headwind over the last 18 months or so. But when you think about a more normalized environment, what type of growth profile do you think MeridianLink has?

Saket Kalia: I think the next part of your question was volumes. Auto is clearly from a volume standpoint a pretty big factor for us. They are after it kind of breaks down somewhat more equally. There's not any consumer loan channel that I would say stand out with kind of the same light shine on it than auto. You can in our business, personal loans, credit cards, he locks all pretty buoyant loan channels for us.

Chris Kennedy: Hey, Chris, it's Larry. Thanks for the question. Look, I'd start by, you know, in the past, we've talked about our growth algorithm being roughly at an uptick, kind of mid-teens growth. And I think that's about right. And I'll just kind of bridge you from where we are and to how we get there.

Chris Kennedy: Hey Chris, it's Larry, thanks for the question. It's started by, you know, in the past we've talked about our growth algorithm of roughly adding up to...

Chris Kennedy: you know, kind of mid-teens growth. And I think that's about right. And I'll just kind of bridge it from where we are and to how we get there. You know, as I said, we got kind of, you know.

Larry Katz: You know, as I said, we got kind of a mid to high single digit ACV release based on bookings, and that's both new and cross-sell. And that's kind of where we're seeing it and where we're guiding it. Price and churn are roughly offsetting each other, and maybe there's a little bit of opportunity there to be positive. And the real headwind right now is volumes, as we talked about. That's a negative for today.

Larry Katz: mid-high single digits ACV release based on Brookings and his foot new and cross cell.

Saket Kalia: There's less data around personal loans in the market, you would kind of need to look at through stage and some bank data that you would need to track and follow. Credit card is more data generally speaking also the credit bureaus published data on kind of credit card. Call it Matrix. And I would say you can find a decent amount of data around MBA and other mortgage industry forecasting environments. Scott, I've got to ask you a question of them, sir. Larry, maybe some of my follow-up for you, understanding that, and by the way, congrats on the transition.

Larry Katz: And that's, you know, and that's kind of where we're seeing it and where we're guiding to.

Larry Katz: Price and churn are roughly offsetting each other, and maybe there's a little bit of opportunity there to net positive.

Larry Katz: And as that flips towards the positive and then gets back towards kind of more on what I'd call normalized volume growth, which is historically in kind of the mid to mid-high single digits, you can really see a path to a mid-teens grower. And so the delta from here to there is really its volumes, right? And the way that I You know, we've talked about this in the past in terms of a coiled spring, but I think the macro is, you know, it is really the drivers and the headwinds that I was talking about really point to those elements of the coiled spring, right?

Larry Katz: And, you know, the real headwind right now is VIMES, as we talked about, right? That's a negative today. And as that flips towards the positive and then gets back towards kind of more...

Larry Katz: what I'd call normalized volume growth, which is, you know, historically in kind of the mid to mid-high single digits, you can really see a path to, you know, a mid-teens grower. And so, you know, the delta from here to there is really its volumes, right? And, you know, the way that I

Larry Katz: We've talked about this in the past in terms of Coiled Spring, but I think the macro...

Larry Katz: It is, you know, it is really, the drivers and the headwinds that I was talking about really points to those elements of the coiled spring, right? We're laying the foundation with additional ACV.

Larry Katz: We're laying the foundation with additional ACV, but as, you know, as those respective headwinds, meaning liquidity and used car affordability and mortgage volume start to return, it's going to really, it's going to, you know, we can, we will see acceleration and growth, and that's how we'll get back towards our targeted growth algorithm.

Larry Katz: I mean, maybe just focusing on the go-to-market part of the role, understanding that it's still very early days, what are some of the strengths and maybe opportunities that you think about within the go-to-market organization, do you think about MeridianLink over the next three to five years? Yeah, thank you. The Chris built a really strong organization here with a great team. And so, I think we've got the strategy pointed in the right direction.

Larry Katz: But as those respective headwinds, meaning liquidity and used car affordability and mortgage reliance start to return, we will see acceleration and growth, and that's how we'll get back towards our targeted growth algorithm.

Operator: Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1. Your next question comes from Koji Ikeda from Bank of America. Please go ahead.

Koji Ikeda: Great. Thanks for taking my question.

Speaker Change: Thanks Chris. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1. Your next question comes from Koji Ikeda from Bank of America. Please go ahead.

Koji Ikeda: Yeah, hey guys, thanks for taking the questions here. I wanted to circle back to that downsell of that more data verification services customer. And just, you know, I totally get that there was a downsell there, and it's totally understandable, but wanted to ask if there are other customers in that segment that are of similar size and just trying to think of the potential risk of another one, you know, either downselling, or is this, is this really just a one-off, you know, megatype customer in that category?

Koji Ikeda: Yeah, hey guys, thanks for taking the questions here. I wanted to circle back...

Larry Katz: So I think the starting place is in a really, really good place. You know, this is going to be the first time that we put all of the customer facing our teams, mini sales and marketing and service and customer customer care, the entire customer journey under one leadership. And I think there's, I think that's important at this stage of growth. I think it sets us up for the next chapter here, because I think it's really about delivery for the customer and connecting all the way from marketing through delivery of services.

Koji Ikeda: to that downsell of that more a data verification services customer. And just, you know, I totally get that there was a downsell there and totally understandable, but wanted to ask if there's other

Koji Ikeda: customers in that segment that are of similar size and just trying to think of the potential risk of another one you know either down selling or is this this really just a one-off you know mega type customer in that category?

Nicolaas Vlok: Hi, Koji. Good to hear from you now. This is Niklaus.

Nicolaas Vlok: First of all, it's a unique situation. We, which is not a normal course of business, and the Downs. It's a top five DVS customer, um, but it's not We don't expect the situation to repeat itself, and it's also, from an event perspective, more of a one-off. So from my standpoint, I don't expect a continuation of it, and I also don't expect a repeat of it for us.

Nicolaas Vlok: [inaudible]

Ari Kurji: Ari Kurji

Nicolaas Vlok: Good to hear from you now. This is Nikolaas. First of all, it's a unique situation.

Larry Katz: And I think that's going to be a meaningful opportunity for us to set us up to scale, become more efficient and frankly just to deliver better customer experiences and which drive ultimately better execution, better cross sell, revenue growth, et cetera. So that's going to be a meaningful area of focus for me. And I think the connectivity that we have and the business with Elias as well is going to really be a great partnership to help drive that entire commercial execution to scale this business. All super helpful. Thanks, guys.

Nicolaas Vlok: We...

Nicolaas Vlok: which is not a normal course of business and the downs it's and it's a it's a top five DVS customer but it's not

Nicolaas Vlok: to

Nicolaas Vlok: I don't expect a continuation of it and I also don't expect a repeat of it for us.

Koji Ikeda: Okay, okay, that's helpful. In the answer to a prior question, there is an average interest rate of, you know, the high of five handles; it needs to get lower than that for things to really, you know, kind of start churning, not churning, churn is the wrong word, but, you know, really moving on the volume side. And so I just wanted to try and ask you a question: have you thought about what that demand curve begins to look like?

Alex Clark: Hey, you're next question. Come some Alex. It's Clark from Redmond James. Please go ahead. Great. Thank you. Larry just following up on one of your answers earlier to Andrew's question around the success you're having to go to market side. I just wanted to ask if you have to provide some more color in terms of what you're seeing from the sales force in terms of productivity and how you're viewing the opportunity to maybe invest more behind that success. Or if you think that the sales force is about the right size right now. Thanks. Thanks for the question.

Speaker Change: Okay, okay, that's helpful.

Koji Ikeda: In the answer to a prior question, there's the...

Koji Ikeda: average interest rate of you know the high of five handle it needs to get lower than that for things to really you know kind of start

Speaker Change: Churnin, not Churnin.

Koji Ikeda: and the turners are onward, but, you know, really moving on the volume side perspective.

Koji Ikeda: You know, is it pretty linear once you hit that 5% mark? Or does it really start to hockey stick at a certain level, you know, maybe below that? I mean, just trying to understand how you guys are thinking about or modeling where volumes could go once it breaks that.

Speaker Change: So, I just wanted to try and ask you a question of, have you thought about what that demand curve looks like?

Koji Ikeda: begins to look like. You know, is it pretty linear once you hit that 5% mark, or does it...

Koji Ikeda: Really start the hockey stick at a certain level, you know, maybe below that. I mean, just trying to understand how you guys are thinking about or modeling where volumes could go once it breaks that threshold lower.

Larry Katz: So it's one of the areas I'm going to focus on. Today we've got really strong sales efficiency. If you look at if you just look at our sales as percentage of revenue compared to any metric were efficient. I think we've got a we're well sized right now for you know for for our strategy. We are seeing a bit more. You know what's what's attorney knows, of expectations around rates. There is a bit more of demand, of inbound demand, as customers look at accelerated growth and kind of continue to open their, continue to get more excited about further investment in the business.

Larry Katz: Hey Koji, it's Larry. Look, there's a lot of forces at play there, and there's a lot of opportunity as rates come down to those kind of levels, right? And so I wouldn't guide towards a true sensitivity, but we will see, as we have seen even in the recent rate environment with rate expectations coming down, some increase in mortgage volumes in line with the MBA, and that's starting to tip customers above their contracts, above their minimums.

Larry Katz: Hey, Koji, it's Larry. Look, there's a lot of...

Larry Katz: there's there's a there's a bunch of forces at play there and and there's a lot of and there's a lot of opportunity as our as rates come down to those kind of levels right and there's and so I wouldn't I wouldn't guide towards a true sensitivity but we will see as you know we have seen even in the recent

Larry Katz: Even in the recent rate environment, with rate expectations coming down, some increase in mortgage volumes in line with the NBA, and that's starting to tip customers above.

Larry Katz: I do think there's a little bit more front and demand, but I think our team is well-scaled at this point and we'll want to look at balancing that across the various product groups and across new existing customers and things like that. But I think it's a very, my current view walking into the seat is that it's well-scaled and we'll share more on future calls.

Larry Katz: And so we will continue to see that translate into revenue and growth, and I think there can be quite a bit of opportunity as rates get down into those fives and fours, and folks refinance and can unlock some of that trapped value that they have in their home, both through refinancing and also through purchase volumes that have been constrained due to the lock-in effect.

Larry Katz: There are contracts above their minimums, and so we will continue to see that translate into revenue and growth. And I think there can be quite a bit of opportunity as rates get down into those fives and fours.

Larry Katz: Okay, perfect.

Larry Katz: folks refi and can unlock some of that trap value that they have in their home, both through refinance so through purchase volumes that have been constrained due to the lock in effect.

Nicolaas Vlok: And then I don't know who wants to take this one, Nicholas or Larry, but just in terms of the mortgage cross sell into your consumer lending base, I know it's been a top cross sell booking for several quarters. Can you talk about that penetration of the consumer base in terms of a logo or an ARR opportunity? And then any commonality in what you're replacing, I know you called out the win in the quarter, Nicholas.

Koji Ikeda: Got it. Thank you. Thanks so much for taking the time to answer the question.

Nicolaas Vlok: And there are no further questions at this time. I will turn the call back over to Nicolaas Vlok, CEO, for closing remarks.

Nicolaas Vlok: Got it. Thank you. Thanks so much for taking the questions.

Speaker Change: And there are no further questions at this time. I will turn the call back over to Nikolaas Vlok, CEO , for closing remarks.

Nicolaas Vlok: Thank you. As we wrap up, I want to extend my deepest gratitude to our incredible team for their unwavering dedication and hard work in delivering a solid Q2 performance. I'm excited to partner with Larry in his role as president and welcome Elias later this month to MeridianLink. I also want to acknowledge our valued customers for placing their trust in us and our partners for their ongoing collaboration and support. By working closely together, we continue to deliver innovative solutions that drive value and growth. We look forward to speaking with you again soon, and enjoy the rest of your day.

Nicolaas Vlok: Thank you. As we wrap up, I want to extend my deepest gratitude to our incredible team for their unwavering dedication and hard work in delivering a solid Q2 performance.

Nicolaas Vlok: Thanks. Yeah, we continue to see demand in our depository taking customer base. And we also are fairly deliberate in providing focus in that specific market segment. We view the cross sell opportunity with Meridian Link, one is the platform as significant, the debt wallet optimization, playbook around that where you can have a holistic view across the consumer's debt wallet and make decisions. What's in the best interest of the whole debt wallet is resonating with our customers.

Nicolaas Vlok: I'm excited to partner with Larry in his role as president and welcome Elias later this month to MeridianLink.

Nicolaas Vlok: I also want to acknowledge our valued customers for placing their trust in us and our partners for their ongoing collaboration and support.

Nicolaas Vlok: By working closely together, we continue to deliver innovative solutions that drive value and growth.

Nicolaas Vlok: We looked forward to speaking with you again soon and enjoy the rest of your day.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Nicolaas Vlok: The pipeline continues to build deal momentum from our perspective is solid. Part of the reason why we are engaging with our customers and seeing the success we seeing there is folks want to get in front of the expected mortgage volume return of the retooling now, while it's still a slower period for them before they start seeing more activity. We compete against a broader array, I would say above us, you can see ice mortgage, which is sold early May.

Nicolaas Vlok: And then there's probably a half dozen either point solutions, which is not integrated as a platform like we are, that varies from legacy more on premise to cloud-based solutions. And then there's also some course with what I would call also more legacy-based solutions in the mortgage space. So probably about a dozen or so competitors that you see it in different segments or at different times, but none worth the platform approach across the full consumer debt wallet.

Nicolaas Vlok: Okay I appreciate that color Nicholas. Maybe just one clarification on that. I think in the past you've said like the x percentage of your consumer customers take mortgage. Is that immediately marched up or is it still something that's well north of kind of 70 plus percent opportunity in green space? Thanks. Alex, I don't recall the specific reference to 70%, but from my perspective, there's a real sweet spot and a sizable sweet spot in our customer base.

Nicolaas Vlok: If it goes towards the lower end, they tend to not be in mortgage. They need to have a little bit more of a balance sheet behind them to be in the mortgage business. I would venture out to say somewhere between a third and a half of our customers have the right to play in the mortgage market based on my perspective, and we are seeing good engagement with that subset today.

Alex Clark: All right, great. Thank you.

Koji Ikeda: Your next question from some Koji Ikeda from Bank of America. Please go ahead. Koji from Bank of America. Your line is now open. I have a little question.

Operator: Let's move Koji to the back and move on to Spencer. Your next question comes from Spencer LeBuff from BTIG. Please go ahead. Hey guys, this is Spencer on for Matt VanVleet from BTIG. Just had a couple questions for you guys. You guys kind of hinted at earlier. You guys are expecting demand to obviously trend up with the rate cuts. But if the rate cuts happen as soon as September, where should we expect more of a benefit?

Operator: The mortgage side of lending or the non-morgant is like auto and consumer. Thank you. Thanks Spencer for the question. This is Larry. If I heard you right, you're asking where, if rates come down, where are we going to see more of a benefit in the immediate term, whether it's a mortgage or auto. We view rates as an early indicator of demand. It's not kind of a one-to-one ratio of impact. But it's clearly leading indicator that violence will come.

Operator: This is probably why we view it as more gradual return based on rates. I'd say in the auto business, you know, rates are going to help with affordability. But truthfully, as rates have started to come down, we've not seen a change in affordability in our core market meaning in use car. And so that's driven by bunch of the dynamics that I shared in my prepared remarks. And that's going to be more a function of use car prices and rates and balance sheet liquidity and community banks and crediting.

Operator: So I think that as rates come down, it clearly will help. But I think it's going to take some time for that to kind of work its way through into real volume growth. And I think that's what you're seeing both in industry forecast as well as in kind of our guide as well. On the mortgage side, on the other hand, you know, we are seeing real responsiveness to rates. And you know, I saw some articles today about how rates are at recent lows even today.

Operator: And you will see rates coming down and I think that will drive volume. And we're starting to see some of that and you're seeing some of that growth in the mortgage business and the mortgage forecast. But that said, there's, as you look at kind of the distribution of mortgages out there by rate, we're not really going to see big pickup and volume on the refi side until you kind of get into the five handles are below.

Operator: That's where the real kind of bulk of the mortgages out there are. And you'll start to see some pickup in purchase perhaps as rates start to come down. But I think it's going to take some time until, you know, we'll start to see some acceleration, but I think it's really going to take some time for rates to be lower until we really see that re acceleration. Yeah, thank you so much for that response.

Spencer LeBuff: I guess I have just one more question. You know, if you guys can just provide some more color on how sales trends are differing, you know, I guess first banks versus credit unions and, you know, maybe also new customers versus existing customers. Thank you. I apologize, but the audio didn't come through very clearly. Can you just repeat that question? Yeah, guys, can you hear me now or no? Yes. All right. Yeah.

Spencer LeBuff: Can you just provide some color on how sales trends are differing with banks versus credit unions and also with existing customers versus new logos? Thank you. Sounds good. Existing versus new, I think it's the best place to start. On the new logo side, it's a slower market from a enterprise sale deal closing cycle standpoint. And it has been, I would say, probably for over a year, year and a half now. We are developing strong pipeline.

Spencer LeBuff: We continue to build the book on new logos and new logo pipeline. My expectation is we're going to see somewhat of an improvement in the back half of this year into 25 around new logo wins and new logo pipeline. On cross sell, where existing customers continue to invest into meridian link one as a platform that that is strong. And I would say strong to very strong as customers already made the investment and they now want to get more efficiency or more benefit from their investment into the platform.

Spencer LeBuff: Between credit unions and banks, creating unions today roughly makes up two thirds of our depository taking customer base and banks one third. There's probably a somewhat larger new logo opportunity, just purely based on numbers and size. But I would say outside of, I can't really say there's a significant difference. And what they buying or how they buying, I think it's more based on the solution that they are looking at and what they are solving.

Spencer LeBuff: And there's more similarities between the two then differences. I think maybe on the banking side, they can highlight compliance. I think there's more conversations with banking prospects and banking clients on certain compliance requirements, but outside of that. I think both are starting to improve and I expect both new logos to continue on bank and credit union side to strengthen back out this year into next year.

Spencer LeBuff: Thank you very much.

Chris Kennedy: Your next question comes from Chris Kennedy from William Blair. Please go ahead. Yeah, good afternoon, thanks for taking a question.

Larry Katz: I mean, clearly the macro has been a headwind over the last 18 months or so, but when you think about a more normalized environment, what type of growth profile do you think MeridianLink has? Hey Chris, it's Larry, thanks for the question. Look, I start by, you know, in the past we've talked about our growth algorithm of roughly, you know, kind of mid teens growth, and I think that's about right, and I'll just kind of bridge it from where we are and to how we get there.

Larry Katz: You know, as I said, we've got kind of, you know, mid to high single digits, ACV release based on bookings, and that's both new and cross sell, and that's, you know, and that's kind of where we're seeing it, and where we're guiding to, you know, price and churn are roughly offsetting each other, and maybe there's a little bit of opportunity there to net positive. And you know, the real headwind right now is volumes, as we talked about, right?

Larry Katz: That's a negative today, and as that lives towards the positive and then gets back towards kind of more what I'd call normalized volume growth, which is, you know, historically in kind of the mid to mid-high single digits, you can really see a path to, you know, a mid teens grower, and so, you know, the delta from here to there is really its volumes, right? And the way that I, you know, we've talked about this in the past in terms of coil spring, but I think the macro is, you know, it is really the drivers and the headwinds that I was talking about really points to those elements of the coil spring, right?

Larry Katz: We're laying the foundation with additional ACV, but as, you know, as those, as those respective headwinds, meaning liquidity and use car affordability and work is really a start to return. It's been really, it's gonna, you know, we can, we will see acceleration and growth, and that's how we'll get back towards our targeted growth algorithm.

Operator: Great. Thanks for taking the question. Thanks Chris. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star one.

Koji Ikeda: Your next question comes from Koji Aikido from Bank of America. Please go ahead. Yeah, hey guys. Thanks for taking the questions here. I wanted to circle back to that down sell of that more data verification services customer. And just, you know, I totally bet that there was a down sell there and totally understandable, but wanted to ask if there's other customers in that segment that are of similar size and just trying to think of the potential risk of another one, you know, either down selling or is this, is this really just a one off, you know, mega type customer in that category?

Koji Ikeda: Hi Koji. We can hear from you now. This is Nicholas. First of all, it's a unique situation. We, which is not a normal course of business, and the downs, it's, and it's a top five DVS customer. But it's not, we don't expect the situation to repeat itself. And it's also from an event perspective more one off. So from my standpoint, I don't expect a continuation of it, and I also don't expect a repeat of it for us.

Larry Katz: Okay, okay, that's helpful. And in the answer to a prior question, there's the average interest rate of, you know, a five handle, I need to get lower than that for things to really kind of start churning, I'm not sure, and it turns it wrong word, but, you know, really moving on the volume side perspective. And so I just wanted to try and ask you a question of, have you thought about what that demand curve begins to look like?

Larry Katz: You know, is it pretty linear once you hit that 5% mark? Or does it really start the hockey stick at a certain level, you know, maybe below that? I mean, just trying to understand how you guys are thinking about our modeling where volumes could go once it breaks that threshold lower. Hey coach, he's Larry, look, there's a lot of, there's a bunch of forces that play there, and there's a lot of, and there's a lot of opportunity as our, as rates come down to, to those kind of levels, right?

Larry Katz: And there's, and so I wouldn't, I wouldn't guide towards a true sensitivity, but we will see. As you know, we have seen even in the recent, even in the recent rate environment with rate expectations coming down some increase in mortgage volumes in line with the NBA, and that's starting to tip customers above their, their contracts above their minimums. And so we will continue to see that translate into revenue and growth, and I think there's, you know, there's quite a bit of, there can be quite a bit of, of, of opportunity as rates get down to those 5s and 4s, and folks refi and, and can unlock some of that, that, that trap value that they have in their home, both through, through refinals, so through purchase volumes that have been, you know, been constrained due to the, did a lot in effect.

Operator: Got it. Thank you. Thanks so much for taking the questions. And there are no further questions at this time.

Nicolaas Vlok: I will tend to call back over to necklace block seal for closing remarks. Thank you. As we wrap up, I want to extend my deepest gratitude to our incredible team for the unwavering occasion and hard work in delivering a solid Q2 performance. I'm excited to partner with Larry in his role as president, and welcome Elias later this month to Meridian link. I also want to acknowledge our valued customers for placing their trust in us, and our partners for their ongoing collaboration and support. By working closely together, we continue to deliver innovative solutions that drive value and growth. We look forward to speaking with you again soon and enjoy the rest of your day.

Operator: Ladies and gentlemen, this concludes to this conference call. You may now disconnect. Thank you.