MeridianLink, Inc. (NYSE:MLNK) Q4 2024 Earnings Conference Call March 6, 2025 5:00 PM ET Company Participants Gianna Rotellini - Senior Director-Investor Relations and Strategic Initiatives Nicolaas Vlok - Chief Executive Officer Larry Katz - President Elias Olmeta - Chief Financial Officer Conference Call Participants Cristopher Kennedy - William Blair Andrew Schmidt - Citi Saket Kalia - Barclays Matthew Kikkert - Stifel Jessica Wang - Raymond James Operator Ladies and gentlemen, thank you for standing by, ...

Core Insights - MeridianLink (MLNK) reported quarterly earnings of $0.08 per share, exceeding the Zacks Consensus Estimate of $0.07 per share, and a significant improvement from a loss of $0.29 per share a year ago [1] - The company achieved revenues of $79.44 million for the quarter, surpassing the Zacks Consensus Estimate by 1.80% and showing growth from $74.58 million year-over-year [3] Earnings Performance - The earnings surprise for the quarter was 14.29%, while the previous quarter saw a negative surprise of -33.33% [2] - Over the last four quarters, MeridianLink has only surpassed consensus EPS estimates once [2] Revenue Insights - MeridianLink has consistently topped consensus revenue estimates, achieving this four times over the last four quarters [3] - The current consensus EPS estimate for the upcoming quarter is $0.10, with expected revenues of $81.04 million, and for the current fiscal year, the estimate is $0.37 on revenues of $329.75 million [8] Market Performance - MeridianLink shares have declined approximately 10.6% since the beginning of the year, contrasting with the S&P 500's decline of -0.7% [4] - The company's current Zacks Rank is 4 (Sell), indicating expectations of underperformance in the near future [7] Industry Context - The Technology Services industry, to which MeridianLink belongs, is currently ranked in the top 27% of over 250 Zacks industries, suggesting a favorable industry outlook [9]

Financial Performance - Fourth quarter revenue reached $79.4 million, representing a 7% year-over-year growth[1] - Full year 2024 revenue totaled $316.3 million, a 4% increase year-over-year[6] - The company expects full year 2025 revenue to be in the range of $326.0 million to $334.0 million[12] - Total revenues for Q4 2024 reached $79,437 thousand, representing a 7% increase from $74,579 thousand in Q4 2023[24] - Subscription fees contributed $65,208 thousand in Q4 2024, up from $61,999 thousand in Q4 2023, marking a growth of 4%[26] Profitability Metrics - Non-GAAP operating income was $17.8 million, or 22% of revenue, while GAAP operating loss was $(0.2) million[6] - Adjusted EBITDA for the fourth quarter was $33.4 million, accounting for 42% of revenue[6] - Non-GAAP operating income for Q4 2024 was $17,828 million, up from $15,209 million in Q4 2023, representing a 17% increase[35] - Net loss for Q4 2024 was $7,745 million, a significant improvement compared to a net loss of $29,574 million in Q4 2023[36] - Adjusted EBITDA for the year ended December 31, 2024, reached $130,704 million, compared to $112,990 million in 2023, reflecting an increase of 15.7%[36] - Non-GAAP net income for the year ended December 31, 2024, was $18,026 million, compared to a loss of $15,543 million in 2023[35] - Non-GAAP basic net income per share for Q4 2024 was $0.08, compared to a loss of $0.29 per share in Q4 2023[35] - The net loss margin improved to (10)% in Q4 2024 from (40)% in Q4 2023, showing a positive trend in profitability[36] Cash Flow and Liquidity - Cash and cash equivalents increased to $92,765 thousand as of December 31, 2024, compared to $80,441 thousand at the end of 2023[32] - The company’s cash flows from operating activities for the year ended December 31, 2024, were $77,802 thousand, compared to $67,964 thousand in 2023, showing a 14.5% increase[32] - Net cash provided by operating activities for Q4 2024 was $13,813 million, compared to $12,478 million in Q4 2023, representing an increase of 10.7%[41] - Free cash flow for Q4 2024 reached $12,050 million, up from $9,636 million in Q4 2023, marking a growth of 25.5%[41] - Total net cash provided by operating activities for the year ended December 31, 2024, was $77,802 million, compared to $67,964 million in 2023, reflecting a year-over-year increase of 14.0%[41] - Total free cash flow for the year ended December 31, 2024, was $70,343 million, up from $57,771 million in 2023, indicating a growth of 21.8%[41] Expenses and Investments - Operating expenses for Q4 2024 were $52,986 thousand, up from $42,764 thousand in Q4 2023, reflecting a 24% increase[24] - Research and development expenses for the year ended December 31, 2024, totaled $39,454 million, down from $47,517 million in 2023, indicating a reduction of 16.9%[40] - General and administrative expenses for Q4 2024 were $32,393 million, an increase from $22,481 million in Q4 2023, representing a 44% rise[40] - Capitalized software costs decreased from $2,246 million in Q4 2023 to $1,609 million in Q4 2024[41] - Capital expenditures also saw a decline from $596 million in Q4 2023 to $154 million in Q4 2024[41] Debt and Assets - Long-term debt increased to $464,922 thousand in 2024 from $420,004 thousand in 2023, representing a 10.7% rise[22] - Total assets decreased to $961,333 thousand in 2024 from $996,251 thousand in 2023[22] Strategic Initiatives - MeridianLink achieved record bookings in the fourth quarter, driven by demand for MeridianLink® One[2] - The company launched a new Share-of-Wallet add-on for MeridianLink® Consumer, resulting in conversion rates of up to 9%[6] - A new partnership with ScoreNavigator was announced, enhancing credit report analysis for customers[6] - The Board of Directors approved a stock repurchase program authorizing up to $129.5 million of common stock[1] Litigation and Settlements - The company incurred $1.5 million in settlements related to litigation during the year ended December 31, 2024[36]

Core Insights - Zest AI has expanded its partnership with MeridianLink to enhance fraud protection for financial institutions through the introduction of Zest Protect, an AI-powered fraud detection tool [1][3][4] - The partnership aims to address the significant rise in consumer fraud, which exceeded $10 billion in losses in 2023, with credit unions and community banks experiencing a 69% increase in fraud cases [2][3] Company Overview - Zest AI focuses on using AI technology to improve lending processes and broaden access to equitable lending, having been recognized in the Forbes Fintech 50 [5] - MeridianLink provides modern software platforms for financial institutions, enabling efficient growth through cloud-based solutions for digital lending and data verification [6][7] Partnership Details - The collaboration allows MeridianLink's over 2,000 customers to utilize Zest Protect, which integrates seamlessly with existing fraud review processes, enhancing the speed and accuracy of fraud detection [1][3] - Zest Protect is customizable, allowing financial institutions to adjust risk thresholds based on various factors, thereby improving their fraud prevention strategies [3][4] Industry Context - The financial sector is facing escalating challenges related to fraud, with every dollar lost to fraud costing institutions four times that amount in expenses and lost time [4] - The partnership is positioned as a proactive measure to combat increasingly sophisticated fraud, including threats from AI-generated fraud [4]

Core Insights - Automatic has announced a strategic partnership with MeridianLink to enhance automotive lending solutions [1][4] - The collaboration aims to leverage Automatic's dealership network technology and MeridianLink's decisioning capabilities to improve lending processes [2][3] Group 1: Company Overview - Automatic is a fintech firm focused on connecting independent car dealerships with lenders, providing a cost-effective solution for the automotive financing sector [6] - MeridianLink is a provider of software platforms for financial institutions, offering solutions for digital lending, account opening, and data verification [7] Group 2: Partnership Details - The partnership will enable financial institutions to access Automatic's platform seamlessly, enhancing their lending processes and member satisfaction [4] - MeridianLink's Advanced Decisioning capabilities will be integrated into Automatic's framework, allowing for real-time loan analysis and improved risk management [3] Group 3: Market Impact - The collaboration is expected to empower lenders to access new clients safely and optimize loan aggregation, thereby capitalizing on market opportunities [4] - This partnership represents a significant milestone for Automatic in its mission to foster an 'Open Marketplace' within the automotive financing landscape [4]

Financial Data and Key Metrics Changes - The company achieved revenue of $80.4 million, representing a 5% year-over-year growth, in line with the high end of guidance [6][33] - Adjusted EBITDA was $33.8 million, reflecting a 42% EBITDA margin, exceeding the high end of guidance [6][33] - Free cash flow generated was $18.7 million, with cash and cash equivalents at $82.3 million at the end of Q3 [33][43] Business Line Data and Key Metrics Changes - Total lending software revenue grew by 7% year-over-year, accounting for nearly 78% of total revenue [36] - Non-mortgage lending revenue increased by 9% year-over-year, driven by ACV release from existing and new customers [36] - Mortgage-related revenue within lending software solutions declined by 7% year-over-year due to customer churn [37] Market Data and Key Metrics Changes - Community banks and credit unions are experiencing deposit constraints, with loan-to-deposit ratios remaining elevated [8] - The affordability of used cars remains a challenge due to high prices and elevated financing rates, although lower used car prices are expected over time [9] - Mortgage rates have increased recently, moderating demand and reflecting macroeconomic uncertainty [10] Company Strategy and Development Direction - The company is focused on a land-and-expand strategy, deepening relationships with customers and generating demand through digital transformation [12] - Management emphasized the importance of developing leadership to scale the business, with recent promotions and onboarding of key executives [11] - The company plans to invest in innovation to meet evolving digital lending needs and enhance customer experiences [12][22] Management Comments on Operating Environment and Future Outlook - Management expects headwinds to persist in the mortgage market, with a slow recovery anticipated [10][46] - The company is focused on disciplined cost management while investing for future success [48] - Management believes that as the macro environment improves, headwinds impacting the customer base will moderate over the medium term [47] Other Important Information - The company returned $31.3 million of capital to shareholders through stock buybacks in Q3 [6][45] - MeridianLink was included in IDC's top 50 of its 2024 Global FinTech 100 list, highlighting its market differentiation [72] Q&A Session Summary Question: What is being done to accelerate the release of ACV? - Management indicated that ACV release is driven by bookings growth and stable delivery times, not by accelerated delivery processes [56][57] Question: When might mortgage headwinds improve? - Management does not anticipate a fast return to normal, expecting mortgage rates to need to drop below five for a meaningful impact [59] Question: What is the expected revenue growth in a normalized environment? - Management indicated that in a normalized environment, revenue growth could reach mid-teens percentage [61][62] Question: What factors are driving success in cross-sell? - Cross-sell success is attributed to the platform's variety of solutions and strong interest in mortgage and data analytics capabilities [64][66] Question: Will the macro environment impact M&A activity? - Management expects increased M&A activity as rates come down, benefiting the company as larger institutions tend to be consolidators [69][70]

● ● ● ● ● ● ● ● ● ● ............ ...... ..... · · · · meridianlink Third Quarter 2024 Results November 2024 Forward-Looking Statements 2 and Disclaimers Information in this presentation and the accompanying oral presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate t ...

Core Viewpoint - MeridianLink reported quarterly earnings of $0.06 per share, missing the Zacks Consensus Estimate of $0.09 per share, and down from $0.10 per share a year ago [1][2] Financial Performance - The company posted revenues of $80.37 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 1.04%, compared to $76.49 million in the same quarter last year [3] - MeridianLink has topped consensus revenue estimates three times over the last four quarters [3] Earnings Surprises - The quarterly report represents an earnings surprise of -33.33%, and the company has not surpassed consensus EPS estimates over the last four quarters [2][4] Stock Performance - MeridianLink shares have lost about 2.9% since the beginning of the year, while the S&P 500 has gained 24.3% [4] Future Outlook - The current consensus EPS estimate for the coming quarter is $0.08 on revenues of $79.36 million, and $0.27 on revenues of $315.43 million for the current fiscal year [8] - The estimate revisions trend for MeridianLink is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [7] Industry Context - The Technology Services industry, to which MeridianLink belongs, is currently in the top 28% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [9]

Revenue and Financial Performance - The company reported that approximately 70% of revenue for the full-year 2023 is attributable to lending activities, highlighting the importance of lending as a revenue driver for financial institutions [129]. - In Q3 2024, the company reported revenues of $80.369 million, an increase from $76.488 million in Q3 2023, representing a growth of approximately 2.4% year-over-year [171]. - Revenues for the three months ended September 30, 2024, were $80,369 thousand, an increase of $3,881 thousand or 5% compared to the same period in 2023 [173]. - Revenues for the nine months ended September 30, 2024, were $236,861 thousand, an increase of $7,823 thousand or 3% compared to the same period in 2023 [173]. - Adjusted EBITDA for the three months ended September 30, 2024, was $33,829,000, an increase from $29,835,000 in the prior year [215]. - Adjusted EBITDA for the nine months ended September 30, 2024, was $97,352,000, compared to $81,888,000 for the same period in 2023 [215]. Expenses and Costs - Operating expenses increased to $50.160 million in Q3 2024 from $43.907 million in Q3 2023, reflecting a rise of approximately 14.5% year-over-year [171]. - General and administrative expenses for the three months ended September 30, 2024, were $29,649 thousand, an increase of $6,431 thousand or 28% compared to the same period in 2023 [180]. - Research and development expenses were $10.019 million in Q3 2024, down from $11.248 million in Q3 2023, indicating a decrease of approximately 10.9% year-over-year [171]. - Research and development expenses for the three months ended September 30, 2024, were $10,019 thousand, a decrease of $1,229 thousand or 11% compared to the same period in 2023 [183]. - Total share-based compensation expense for the nine months ended September 30, 2024, was $34,683 thousand, an increase of $12,467 thousand or 56% compared to the same period in 2023 [172]. - Interest expense for the three months ended September 30, 2024, was $10,165,000, compared to $9,780,000 for the same period in 2023 [215]. Organizational Changes and Strategies - The company completed an organizational realignment plan in January 2024, resulting in a workforce reduction of approximately 12% to manage operating costs and enable efficient delivery on business objectives [138]. - The company has a capital allocation strategy that includes building, buying, or partnering to enhance its solutions and expand its portfolio capabilities in consumer lending markets [130]. - The company believes there is significant untapped market potential in loan origination and digital banking, particularly as financial institutions adopt online lending practices [128]. - The company plans to continue investing in research and development to enhance solutions and grow the customer base, expecting R&D expenses to increase in absolute dollars over the long term [163]. Cash Flow and Financing Activities - Cash flows from operating activities increased by $8,503,000 or 15% for the nine months ended September 30, 2024, compared to the same period in 2023 [199]. - Cash used in investing activities decreased significantly by $29,890,000 or 124% for the nine months ended September 30, 2024, compared to the same period in 2023 [203]. - Cash used in financing activities increased by $18,568,000 or 49% for the nine months ended September 30, 2024, primarily due to higher stock repurchases [204]. - As of September 30, 2024, the company had cash and cash equivalents of $82,300,000 and unused capacity under its revolving line of credit of $50,000,000 [194]. - The company increased the aggregate principal amount of its term loan by $50,000,000 in May 2024, generating net proceeds of approximately $48,700,000 after financing fees [192]. Stock and Shareholder Activities - The company authorized a stock repurchase program in January 2024 to acquire up to $125 million of its common stock, with approximately $31.3 million used for repurchases during the three months ended September 30, 2024 [140]. - The company repurchased 2,406,015 shares at a price of $18.2875 per share, totaling approximately $44.4 million [144]. - The company completed a secondary offering on September 30, 2024, selling 6,000,000 shares at an offering price of $21.05 per share, with underwriters partially exercising their option to purchase an additional 650,000 shares [141]. Legal and Restructuring Costs - The company incurred restructuring charges of $4.2 million for severance and related costs during the nine months ended September 30, 2024, reflecting the costs associated with the organizational realignment plan [139]. - The company incurred $1.5 million in estimated settlements of class action lawsuits during the nine months ended September 30, 2024 [215]. - The company recognized a gain of $0.2 million on a favorable litigation settlement during the three and nine months ended September 30, 2024 [215]. - Restructuring related costs for the nine months ended September 30, 2024, were $4,179,000, an increase of $558,000 or 15% compared to $3,621,000 in the same period in 2023 [187]. Market and Risk Exposure - There have been no significant changes in the company's exposures to market risk since December 31, 2023 [217].

Financial Performance - Third quarter revenue reached $80.4 million, a 5% increase year-over-year, driven by lending software solutions revenue of $63.0 million, which grew by 7% year-over-year[1][2] - Operating income was $2.6 million, representing 3% of revenue, while non-GAAP operating income was $18.0 million, or 22% of revenue[2] - The company reported a net loss of $(7.1) million, or (9)% of revenue, with adjusted EBITDA of $33.8 million, equating to 42% of revenue[2] - Cash flows from operations totaled $20.6 million, or 26% of revenue, and free cash flow was $18.7 million, or 23% of revenue[2] - Total revenues for the three months ended September 30, 2024, were $80,369 thousand, representing a 3.9% increase from $76,488 thousand in the same period of 2023[22] - Subscription fees contributed $67,344 thousand in Q3 2024, up from $64,613 thousand in Q3 2023, indicating a growth of 4.3%[23] - Gross profit for the three months ended September 30, 2024, was $52,719 thousand, compared to $49,476 thousand in Q3 2023, reflecting a 4.5% increase[22] - Operating income decreased to $2,559 thousand in Q3 2024 from $5,569 thousand in Q3 2023, a decline of 54.0%[22] - Net loss for the three months ended September 30, 2024, was $7,051 thousand, compared to a net loss of $2,069 thousand in Q3 2023, representing a significant increase in losses[22] - The company reported a net loss of $22,027,000 for the nine months ended September 30, 2024, compared to a net loss of $12,965,000 for the same period in 2023, representing an increase in losses of 70.5%[26] Cash Flow and Liquidity - MeridianLink returned $31.3 million to stockholders through the repurchase of 1.4 million shares[2] - The company reported a net cash provided by operating activities of $63,989,000 for the nine months ended September 30, 2024, compared to $55,486,000 in 2023, an increase of 15.4%[26] - Cash and cash equivalents increased to $82,266 thousand as of September 30, 2024, from $80,441 thousand as of December 31, 2023, a growth of 2.3%[21] - The company’s cash and cash equivalents at the end of the period were $82,266,000, down from $97,560,000 at the end of the previous year, a decrease of 15.6%[26] - Net cash provided by operating activities was $20,595 million in Q3 2024, slightly down from $21,301 million in Q3 2023, with free cash flow at $18,735 million, compared to $18,817 million in the prior year[35] Future Guidance - Fourth quarter revenue guidance is projected to be between $76.0 million and $80.0 million, with adjusted EBITDA expected between $29.5 million and $32.5 million[4] - Full year 2024 revenue is anticipated to be in the range of $313.0 million to $317.0 million, with adjusted EBITDA expected between $127.0 million and $130.0 million[4] Strategic Initiatives - The company successfully launched Broadway Bank on its MeridianLink® Mortgage platform, reducing loan processing time by up to six days[3] - MeridianLink's land and expand strategy is driving demand for its digital lending solutions in a competitive market[3] - The company completed a secondary public offering of 6 million shares, enhancing liquidity and attracting new investors[3] Expenses and Cost Management - Research and development expenses for the three months ended September 30, 2024, were $10,019,000, a decrease from $11,248,000 in 2023, representing a decline of 10.9%[31] - General and administrative expenses for Q3 2024 totaled $29,649 million, up from $23,218 million in Q3 2023, with general and administrative as a percentage of revenue increasing to 37% from 30%[33] - Sales and marketing expenses reached $10,492 million in Q3 2024, compared to $9,441 million in Q3 2023, with sales and marketing as a percentage of revenue at 13%, up from 12%[34] - Share-based compensation expense increased to $34,690,000 for the nine months ended September 30, 2024, from $22,879,000 in 2023, an increase of 51.6%[28] - Cost of revenue for Q3 2024 was $27,650 million, a slight increase from $27,012 million in Q3 2023, with a cost of revenue as a percentage of revenue at 34% compared to 35% in the previous year[32] - Non-GAAP cost of revenue for Q3 2024 was $21,483 million, representing 27% of revenue, consistent with the previous year[32] - Non-GAAP general and administrative expenses for Q3 2024 were $19,687 million, reflecting a significant increase from $11,938 million in Q3 2023[33] - Non-GAAP sales and marketing expenses were $8,571 million in Q3 2024, compared to $8,154 million in Q3 2023, maintaining a non-GAAP sales and marketing percentage of 11%[34] Balance Sheet Highlights - Total current assets increased to $133,443 thousand as of September 30, 2024, from $124,427 thousand as of December 31, 2023, a growth of 7.3%[21] - Total liabilities rose to $549,621 thousand as of September 30, 2024, compared to $488,004 thousand as of December 31, 2023, an increase of 12.6%[21] - Total stockholders' equity decreased to $418,322 thousand as of September 30, 2024, from $508,247 thousand as of December 31, 2023, a decline of 17.7%[21] Performance Metrics - The adjusted EBITDA margin for the nine months ended September 30, 2024, was 41%, compared to 36% in 2023, indicating an improvement of 5 percentage points[29] - The percentage of revenue related to the mortgage loan market for lending software solutions was 10% in Q3 2024, down from 12% in Q3 2023[25] - Non-GAAP operating income for the nine months ended September 30, 2024, was $49,872,000, compared to $35,846,000 in 2023, reflecting an increase of 39.1%[27] - The company’s adjusted EBITDA for the nine months ended September 30, 2024, was $97,352,000, up from $81,888,000 in 2023, marking a growth of 19.0%[29] - The overall performance indicates a focus on managing costs while maintaining revenue growth, with strategic investments in sales and marketing[32][33][34][35]