MeridianLink(US:MLNK)2025-05-12 20:13PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents MeridianLink, Inc.'s unaudited condensed consolidated financial statements for Q1 2025 and 2024, including balance sheets, statements of operations, cash flows, and notes Condensed Consolidated Balance Sheets Total assets increased to $987.0 million from $961.3 million, driven by cash growth; liabilities rose to $555.0 million, mainly from deferred revenue Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $128,895 | $92,765 | | Total current assets | $175,607 | $138,160 | | Goodwill | $610,063 | $610,063 | | Total assets | $986,958 | $961,333 | | Liabilities & Stockholders' Equity | | | | Deferred revenue (current) | $39,727 | $17,170 | | Total current liabilities | $79,022 | $57,029 | | Long-term debt, net | $463,989 | $464,922 | | Total liabilities | $555,021 | $533,840 | | Total stockholders' equity | $431,937 | $427,493 | Condensed Consolidated Statements of Operations Q1 2025 revenues increased to $81.5 million, with operating income at $3.6 million and a net loss of $4.7 million, an improvement from Q1 2024 Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenues, net | $81,488 | $77,816 | | Gross profit | $53,765 | $51,743 | | Operating income | $3,565 | $3,352 | | Net loss | $(4,685) | $(5,306) | | Net loss per share (Basic & Diluted) | $(0.06) | $(0.07) | - Operating expenses increased to $50.2 million in Q1 2025 from $48.4 million in Q1 2024. The prior year period included $3.2 million in restructuring related costs which did not recur in 202513 Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $42.4 million in Q1 2025, while cash used in financing decreased due to fewer stock repurchases Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,350 | $29,038 | | Net cash used in investing activities | $(1,716) | $(1,929) | | Net cash used in financing activities | $(4,504) | $(45,265) | | Net increase (decrease) in cash | $36,130 | $(18,156) | - Financing activities in Q1 2024 included $44.0 million for repurchases of common stock, which did not occur in Q1 202519 Notes to Condensed Consolidated Financial Statements (Unaudited) Notes detail revenue by solution type, intangible assets, debt structure including a $471.5 million Term Loan, increased share-based compensation, and the 2024 Realignment Plan Revenue by Solution Type (in thousands) | Solution Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Lending Software Solutions | $67,069 | $60,903 | | Data Verification Software Solutions | $14,419 | $16,913 | | Total | $81,488 | $77,816 | - As of March 31, 2025, the company had a Term Loan with an outstanding principal of $471.5 million, maturing in November 202848148 - Total share-based compensation expense increased to $12.4 million in Q1 2025 from $7.8 million in Q1 202468 - In January 2024, the company initiated a '2024 Realignment Plan' involving a 12% workforce reduction, resulting in $3.2 million of restructuring costs recognized in Q1 202480 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial performance, including revenue growth, increased operating expenses, strong operating cash flow, and liquidity, along with non-GAAP reconciliations Overview MeridianLink provides cloud-based SaaS for financial institutions, with a subscription-based revenue model, while monitoring economic uncertainties like inflation and interest rates - The company provides secure, cloud-based software solutions (SaaS) for financial institutions, including banks, credit unions, and mortgage lenders92 - The company's contracts are typically three years, with subscription fees including annual base fees and volume-based fees (per application or loan)95 - In February 2025, the board authorized a new stock repurchase program of up to $129.5 million108 Results of Operations Q1 2025 revenues increased 5% to $81.5 million, driven by Lending Software Solutions, while operating expenses rose due to advisory fees and employee costs Comparison of Results for the three months ended March 31, (in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $81,488 | $77,816 | $3,672 | 5% | | Gross profit | $53,765 | $51,743 | $2,022 | 4% | | Operating income | $3,565 | $3,352 | $213 | 6% | | Net loss | $(4,685) | $(5,306) | $621 | (12)% | - Revenue growth was primarily due to a $6.2 million increase from Lending Software Solutions, partly offset by a $2.5 million decrease from Data Verification Software Solutions130 - General and administrative expenses increased by $2.5 million (10%), mainly due to a $2.1 million increase in advisory fees for material weakness remediation and a $1.5 million rise in employee-related costs133 Liquidity and Capital Resources The company's liquidity includes $128.9 million in cash and a $50.0 million revolving credit facility, with operating cash flow increasing to $42.4 million in Q1 2025 Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,350 | $29,038 | | Net cash used in investing activities | $(1,716) | $(1,929) | | Net cash used in financing activities | $(4,504) | $(45,265) | - Principal sources of liquidity as of March 31, 2025, were $128.9 million in cash and an unused $50.0 million revolving credit facility139 - As of March 31, 2025, $129.5 million remained available for repurchase under the company's stock repurchase program authorized in February 2025150 Non-GAAP Financial Measures The company uses Adjusted EBITDA, a non-GAAP measure, which increased to $34.8 million in Q1 2025 from $31.8 million in Q1 2024 Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss | $(4,685) | $(5,306) | | Interest expense | 8,712 | 9,582 | | Provision for income taxes | 617 | 32 | | Depreciation and amortization | 14,686 | 14,524 | | Share-based compensation expense | 12,381 | 7,936 | | Other adjustments | 3,134 | 4,992 | | Adjusted EBITDA | $34,845 | $31,770 | - Adjustments to calculate Adjusted EBITDA include non-cash charges like depreciation and share-based compensation, as well as specific cash expenses such as restructuring costs and $2.1 million in expenses for material weakness remediation in Q1 2025158160 Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no significant changes in the company's exposure to market risk since December 31, 2024 - There have been no significant changes in the company's exposures to market risk since December 31, 2024161 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to an ongoing material weakness in internal control over financial reporting - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures were not effective due to a previously identified material weakness163 - The material weakness relates to insufficient controls over the set-up of customer contracts for billing and maintaining complete contract support166287 - The company is actively working on remediating the material weakness by implementing process improvements and new key controls, but the process was not yet complete as of the end of the quarter167288 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any litigation or claims that would materially adversely affect its business or financial condition - The company is not currently a party to any litigation or claims that, if determined adversely, would have a material adverse effect on its business, operating results, financial condition, or cash flows172 Item 1A. Risk Factors This section details substantial risks, including economic downturns, competition, cybersecurity threats, regulatory changes, and the material weakness in internal controls, categorized by strategy, operations, legal, finance, and governance Risks Related to Our Strategy and Industry Risks include economic factors affecting the lending market, customer retention, intense competition, and industry concentration in financial services - The lending market is subject to economic and political factors, such as rising interest or inflation rates, which could directly affect performance177 - Failure to retain customers, innovate the platform, or increase brand recognition may limit growth and profitability177 - The business is highly concentrated in the financial services industry, and any downturn or decrease in technology spending in this sector could be adverse205 Risks Related to Our Business and Operations Operational risks include economic conditions, cybersecurity threats, software defects, reliance on third-party systems, and challenges in retaining key personnel and managing growth - Cybersecurity incidents, data breaches, or other compromises could lead to unauthorized data access, reputational damage, and substantial liability177211 - The business depends on retaining key personnel and product partners to drive volume through the platform182 - Disruptions in the performance or delivery of software solutions, whether due to security issues or third-party providers, could decrease demand and harm the brand177 Risks Related to Legal and Regulatory Matters Legal and regulatory risks include compliance with evolving data privacy laws, financial industry regulations, potential litigation, and challenges in protecting intellectual property - The company must comply with complex laws and regulations as a technology provider to the highly regulated financial industry, and failure to do so could disrupt operations182252 - Evolving data privacy regulations, such as the CCPA and CPRA, impose significant compliance obligations and potential liabilities248 - Failures in protecting intellectual property rights could critically impair offerings and the ability to conduct business182257 Risks Related to Finance and Accounting Financial risks include fluctuating quarterly results, forecasting challenges, goodwill impairment, limited deferred tax asset utilization, the identified material weakness in internal controls, and high leverage - A material weakness in internal control over financial reporting has been identified. If not remediated, it may lead to an inability to timely and accurately report financial results182286 - The company's ability to recognize the benefits of its deferred tax assets is dependent on future taxable income and may be limited182277 - The company is highly leveraged, and its substantial indebtedness could restrict its ability to compete, react to business changes, and fund future needs182282 Risks Related to Potential Conflicts of Interests and Related Parties Risks include potential conflicts of interest due to Thoma Bravo's significant ownership and influence, as their interests may diverge from other stockholders - Thoma Bravo holds a significant stake (approx. 37.5%) and influence over the company, and their interests may conflict with those of other stockholders180294 Risks Related to Our Common Stock and Governance Structure Risks related to common stock and governance include price volatility, no dividend intent, emerging growth company exemptions, and charter provisions that could deter change of control - Market conditions, including increased market volatility, could affect the stock price and stockholders' return on investment182300 - The company is an emerging growth company and is not required to comply with certain requirements that apply to other public companies, such as an auditor's attestation on internal controls303 - Delaware law and provisions in the company's charter and bylaws could restrict certain strategic activities or limit stockholder actions182311 Other Items (Items 2, 3, 4, 5, 6) This section covers standard disclosures, including no unregistered equity sales, no defaults on senior securities, and no Rule 10b5-1 trading plan adoptions by directors or officers - The company did not repurchase any of its equity securities during the three months ended March 31, 2025315 - There were no defaults upon senior securities316 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter318