MeridianLink(US:MLNK)2023-11-03 20:31markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited financial statements, management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenue recognition, balance sheet components, debt, equity, and recent business activities [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of the reporting dates Condensed Consolidated Balance Sheets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $1,045.3 million | $1,059.2 million | | Total Liabilities | $491.6 million | $480.1 million | | Total Stockholders' Equity | $553.8 million | $579.1 million | | Cash and cash equivalents | $97.6 million | $55.8 million | | Deferred revenue (current) | $26.7 million | $16.9 million | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenues, gross profit, operating income, net income or loss, and earnings per share for the reported periods Condensed Consolidated Statements of Operations (in millions, except EPS) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues, net | $76.5 million | $71.8 million | $229.0 million | $217.5 million | | Gross profit | $49.5 million | $43.9 million | $145.6 million | $137.9 million | | Operating income | $5.6 million | $4.5 million | $8.7 million | $28.0 million | | Net (loss) income | $(2.1 million) | $(2.9 million) | $(13.0 million) | $6.8 million | | Basic EPS | $(0.03) | $(0.04) | $(0.16) | $0.08 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's stockholders' equity, reflecting net income or loss, stock repurchases, and share-based compensation over the periods - Total stockholders' equity decreased from **$579.1 million** at December 31, 2022, to **$553.8 million** at September 30, 2023, primarily due to net losses and common stock repurchases[14](index=14&type=chunk)[15](index=15&type=chunk) - Repurchases of common stock for the nine months ended September 30, 2023, amounted to **$35.7 million**, significantly higher than **$262 thousand** in the prior year[14](index=14&type=chunk)[15](index=15&type=chunk) - Share-based compensation expense for the nine months ended September 30, 2023, was **$22.2 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities, indicating the net change in cash and cash equivalents Summary of Cash Flows (in millions) | Cash Flow Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net cash provided by operating | $55.5 million | $67.2 million | $(11.7 million) | (17)% | | Net cash provided by (used in) investing | $24.2 million | $(60.4 million) | $84.5 million | 140% | | Net cash used in financing | $(37.9 million) | $(4.8 million) | $(33.1 million) | (693)% | | Net increase in cash and cash equivalents | $41.8 million | $2.1 million | $39.7 million | 1,883% | - Cash flows from investing activities significantly increased due to the return of a **$30.0 million** escrow deposit related to the StreetShares acquisition[17](index=17&type=chunk)[197](index=197&type=chunk) - Cash used in financing activities increased substantially, primarily driven by **$35.7 million** in common stock repurchases[17](index=17&type=chunk)[199](index=199&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's significant accounting policies, revenue recognition, balance sheet components, debt, equity, and recent business activities [Note 1 – Organization and Description of Business](index=8&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Description%20of%20Business) MeridianLink, Inc. provides secure, cloud-based digital solutions to financial institutions, including banks, credit unions, and mortgage lenders, primarily through a software-as-a-service (SaaS) model. The company is controlled by Thoma Bravo UGP, LLC - MeridianLink provides secure, cloud-based digital solutions to financial institutions (banks, credit unions, mortgage lenders, specialty lending providers, consumer reporting agencies) via a SaaS model[18](index=18&type=chunk) - The Company is controlled by its majority stockholder, Thoma Bravo UGP, LLC and its affiliates[18](index=18&type=chunk) [Note 2 – Significant Accounting Policies](index=8&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies) The financial statements are prepared in accordance with GAAP. The company operates as a single operating and reportable segment. ASU 2016-13 (Credit Losses) was adopted on January 1, 2023, with no material impact, and the company, as an emerging growth company, has elected the extended transition period for new accounting standards - The Company operates in one operating and reportable segment, focused on providing cloud-based digital solutions in the United States[22](index=22&type=chunk) - ASU 2016-13, 'Financial Instruments—Credit Losses (Topic 326),' was adopted effective January 1, 2023, with no material impact on the condensed consolidated financial statements[26](index=26&type=chunk) - As an emerging growth company, MeridianLink has elected to use the extended transition period for complying with new or revised accounting standards[25](index=25&type=chunk) [Note 3 – Revenue Recognition](index=10&type=section&id=Note%203%20%E2%80%93%20Revenue%20Recognition) Revenue is disaggregated by solution type (Lending Software Solutions and Data Verification Software Solutions) and major source (subscription fees, professional services, and other). Lending Software Solutions continue to be the primary revenue driver, showing growth, while Data Verification Software Solutions experienced a decline. A $2.3 million revenue reduction occurred in 9M 2023 due to a commercial dispute Net Revenues by Solution Type (in millions) | Solution Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Lending Software Solutions | $58.9 million | $52.4 million | $172.7 million | $153.2 million | | Data Verification Software Solutions | $17.5 million | $19.3 million | $56.3 million | $64.2 million | | Total | $76.5 million | $71.8 million | $229.0 million | $217.5 million | Net Revenues by Major Source (in millions) | Major Source | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Subscription fees | $64.6 million | $61.9 million | $194.8 million | $188.9 million | | Professional services | $8.7 million | $7.3 million | $26.1 million | $21.1 million | | Other | $3.2 million | $2.6 million | $8.1 million | $7.6 million | | Total revenues | $76.5 million | $71.8 million | $229.0 million | $217.5 million | - A **$2.3 million** reduction in Lending Software Solutions revenue for the nine months ended September 30, 2023, resulted from an updated estimate of variable consideration due to a commercial dispute with a channel reseller[31](index=31&type=chunk) [Note 4 – Balance Sheet Components](index=12&type=section&id=Note%204%20%E2%80%93%20Balance%20Sheet%20Components) This note provides detailed breakdowns of prepaid expenses, property and equipment, intangible assets, and accrued liabilities. Intangible assets, net, decreased from $297.5 million at December 31, 2022, to $262.8 million at September 30, 2023, with customer relationships being the largest component Intangible Assets, Net (in millions) | Asset Type | Sep 30, 2023 Net Carrying Amount | Dec 31, 2022 Net Carrying Amount | | :---------------------- | :------------------------------- | :------------------------------- | | Customer relationships | $185.4 million | $211.0 million | | Developed technology | $47.2 million | $56.0 million | | Trademarks | $12.8 million | $14.8 million | | Non-competition agreements | $4.0 million | $4.8 million | | Capitalized software | $13.5 million | $10.9 million | | Total intangible assets, net | $262.8 million | $297.5 million | - Goodwill increased slightly from **$608.7 million** at December 31, 2022, to **$609.3 million** at September 30, 2023[10](index=10&type=chunk) - Total amortization expense for intangible assets was **$13.9 million** for the three months ended September 30, 2023, and **$41.9 million** for the nine months ended September 30, 2023[42](index=42&type=chunk) [Note 5 – Commitments and Contingencies](index=14&type=section&id=Note%205%20%E2%80%93%20Commitments%20and%20Contingencies) The company is not aware of any legal proceedings or claims that would have a material adverse effect on its financial position. Contractual commitments primarily consist of third-party cloud infrastructure agreements, with future minimum payments of $2.5 million for 2024 - Management is not currently aware of any legal proceedings or claims that could have a material adverse effect on the Company's financial position, results of operations, or cash flows[46](index=46&type=chunk) Future Minimum Contractual Commitments (in millions) | Years ending December 31, | Contractual Commitments | | :------------------------ | :---------------------- | | 2023 (remaining 3 months) | $0 thousand | | 2024 | $2.5 million | | Total | $2.5 million | - The Company received **$1.2 million** in funds payable from a former business combination during Q3 2023, which will be remitted in Q4 2023[48](index=48&type=chunk) [Note 6 – Long-Term Debt](index=15&type=section&id=Note%206%20%E2%80%93%20Long-Term%20Debt) The company's long-term debt primarily consists of a $435.0 million 2021 Term Loan and a $50.0 million 2021 Revolving Credit Facility (undrawn). The effective interest rate on the Term Loan was 9.0% as of September 30, 2023, and the company was in compliance with all financial covenants. The benchmark rate for the credit agreement transitioned to SOFR in Q2 2023 Long-Term Debt, Net (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :---------------------- | :----------- | :----------- | | 2021 Term loan | $428.5 million | $431.7 million | | Debt issuance costs | $(4.0 million) | $(4.8 million) | | Total debt, net | $424.5 million | $426.9 million | | Non-current portion, net | $420.9 million | $423.4 million | - Total interest expense (excluding amortization of debt issuance costs) was **$9.6 million** for the three months ended September 30, 2023, and **$27.4 million** for the nine months ended September 30, 2023, reflecting rising rates[49](index=49&type=chunk)[50](index=50&type=chunk) - The effective interest rate on the 2021 Term Loan was **9.0%** as of September 30, 2023[56](index=56&type=chunk) - The 2021 Credit Agreement was amended in Q2 2023 to establish SOFR as the benchmark rate for interest periods beginning on or after June 30, 2023[52](index=52&type=chunk) - The Company was in compliance with all financial covenants of the 2021 Credit Agreement at September 30, 2023[54](index=54&type=chunk) [Note 7 - Stockholders' Equity](index=17&type=section&id=Note%207%20-%20Stockholders'%20Equity) The company's board authorized a $75.0 million stock repurchase program in May 2022, with $36.0 million remaining as of September 30, 2023. During the nine months ended September 30, 2023, the company repurchased 2,182,215 shares for $35.8 million, including a $25 million privately-negotiated transaction - A stock repurchase program of up to **$75.0 million** was authorized in May 2022, with **$36.0 million** remaining for repurchase as of September 30, 2023[61](index=61&type=chunk)[63](index=63&type=chunk) Stock Repurchase Activity (in millions, except share data) | Period | Total Number of Shares Repurchased | Total Cost of Shares Repurchased | | :----- | :------------------------------- | :------------------------------- | | 3 Months Ended Sep 30, 2023 | 1,845,708 | $30.7 million | | 3 Months Ended Sep 30, 2022 | 4,403 | $69 thousand | | 9 Months Ended Sep 30, 2023 | 2,182,215 | $35.8 million | | 9 Months Ended Sep 30, 2022 | 16,703 | $262 thousand | - On September 8, 2023, the Company repurchased 1,525,027 shares for approximately **$25.0 million** in a privately-negotiated transaction[85](index=85&type=chunk) [Note 8 – Share-based Compensation](index=17&type=section&id=Note%208%20%E2%80%93%20Share-based%20Compensation) The company's 2021 Stock Option and Incentive Plan governs equity awards. Total share-based compensation expense for the nine months ended September 30, 2023, increased to $22.2 million from $16.5 million in the prior year, with significant unrecognized compensation remaining for stock options and restricted stock units Share-based Compensation Expense (in millions) | Expense Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenues | $0.9 million | $1.4 million | $2.9 million | $3.6 million | | General and administrative | $4.4 million | $3.2 million | $11.9 million | $6.9 million | | Research and development | $1.7 million | $2.1 million | $5.4 million | $4.5 million | | Sales and marketing | $1.3 million | $0.6 million | $2.7 million | $1.5 million | | Restructuring related costs | $0 thousand | $0 thousand | $(0.7 million) | $0 thousand | | Total | $8.3 million | $7.3 million | $22.2 million | $16.5 million | - As of September 30, 2023, **$9.6 million** of unrecognized share-based compensation expense related to stock options is expected to be recognized over a weighted-average period of 2.1 years[70](index=70&type=chunk) - As of September 30, 2023, **$78.0 million** of unrecognized share-based compensation expense related to RSUs is expected to be recognized over a weighted-average period of 3.07 years[75](index=75&type=chunk) [Note 9 – Income Taxes](index=20&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) The company's effective tax rate for the three and nine months ended September 30, 2023, was 27.9% and 22.7%, respectively. It has gross unrecognized tax benefits of $3.2 million related to R&D credits and determined no valuation allowance is necessary for deferred tax assets Effective Tax Rates | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Rate | **27.9%** | **(44.4%)** | **22.7%** | **44.0%** | - Gross unrecognized tax benefits related to research and development credits were **$3.2 million** as of September 30, 2023, an increase from **$2.5 million** at December 31, 2022[80](index=80&type=chunk) - No valuation allowance was deemed necessary for deferred tax assets as of September 30, 2023, based on the evaluation of available evidence and sources of taxable income[81](index=81&type=chunk) [Note 10 – Related Party Transactions](index=20&type=section&id=Note%2010%20%E2%80%93%20Related%20Party%20Transactions) Related party expenses for the nine months ended September 30, 2023, totaled $2.0 million. Additionally, the company engaged related party contractors for software development, capitalizing $0.1 million in 9M 2023, and executed a $25 million privately-negotiated stock repurchase from a stockholder Related Party Expenses (in millions) | Expense Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenues | $0.4 million | $0.5 million | $1.2 million | $1.6 million | | General and administrative | $0.2 million | $0.2 million | $0.6 million | $0.6 million | | Research and development | $0.1 million | $0.1 million | $0.3 million | $0.2 million | | Sales and marketing | $0 thousand | $0 thousand | $0 thousand | $0.1 million | | Total | $0.6 million | $0.8 million | $2.0 million | $2.5 million | - The Company capitalized **$0.1 million** for internally developed software related to work performed by related parties during the nine months ended September 30, 2023[84](index=84&type=chunk) - A privately-negotiated transaction on September 8, 2023, involved repurchasing 1,525,027 shares of common stock for approximately **$25.0 million** from a stockholder[85](index=85&type=chunk) [Note 11 – Net (Loss) Income Per Share](index=21&type=section&id=Note%2011%20%E2%80%93%20Net%20(Loss)%20Income%20Per%20Share) The company reported a basic and diluted net loss per share of $(0.03) for the three months ended September 30, 2023, and $(0.16) for the nine months ended September 30, 2023. Several potentially dilutive securities were excluded from the diluted EPS calculation due to their anti-dilutive impact Net (Loss) Income Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | $(0.03) | $(0.04) | $(0.16) | $0.08 | | Diluted | $(0.03) | $(0.04) | $(0.16) | $0.08 | - Potentially dilutive securities, including 3,080,624 stock options and 5,116,305 restricted stock units, were excluded from diluted EPS calculation for the three and nine months ended September 30, 2023, as their impact would have been anti-dilutive[87](index=87&type=chunk) [Note 12 – Restructuring Activities](index=22&type=section&id=Note%2012%20%E2%80%93%20Restructuring%20Activities) In February 2023, the board authorized a Restructuring Plan to consolidate functions and improve efficiencies, resulting in an estimated 11% workforce reduction. Total restructuring charges for the nine months ended September 30, 2023, were $3.6 million, primarily for severance and related costs - A Restructuring Plan was authorized in February 2023 to consolidate functions, align teams with business priorities, and improve efficiencies, leading to an estimated **11%** workforce reduction[88](index=88&type=chunk)[90](index=90&type=chunk) - Total restructuring charges of **$3.6 million** for severance and related costs (net of share-based compensation) were recognized during the nine months ended September 30, 2023[91](index=91&type=chunk) [Note 13 – Business Combinations](index=23&type=section&id=Note%2013%20%E2%80%93%20Business%20Combinations) This note details the acquisitions of OpenClose (November 2022) and StreetShares (April 2022). The $30.0 million escrow deposit for the StreetShares acquisition was released back to the company in 9M 2023, and goodwill adjustments were made for both acquisitions - The Company acquired OpenClose in November 2022 for **$63.1 million**, aiming to improve its lending platform and offerings for depository institutions[93](index=93&type=chunk) - The Company acquired StreetShares in April 2022 for **$28.0 million** cash, with a **$30.0 million** contingent earnout escrow that was released back to the Company in its entirety during the nine months ended September 30, 2023[97](index=97&type=chunk)[100](index=100&type=chunk) - Goodwill balance increased to **$609.3 million** as of September 30, 2023, reflecting adjustments from the OpenClose and StreetShares acquisitions[102](index=102&type=chunk) [Special Note about Forward-Looking Statements](index=25&type=section&id=Special%20Note%20about%20Forward-Looking%20Statements) This section advises readers that the report contains forward-looking statements subject to substantial risks and uncertainties, and that these statements are based on current beliefs and may not reflect actual future events. Readers are cautioned to consider risk factors and that the company undertakes no obligation to update these statements - The report contains forward-looking statements regarding future financial/operating performance, strategy, costs, plans, and objectives, which are subject to substantial risks and uncertainties[104](index=104&type=chunk)[106](index=106&type=chunk) - Readers should consider the risk factors described in the 'Risk Factors' section and other SEC filings[104](index=104&type=chunk) - The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the report date, except as required by law[106](index=106&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, key operating measures, and a detailed comparison of financial performance for the three and nine months ended September 30, 2023, and 2022 [Overview](index=27&type=section&id=Overview) MeridianLink is a leading provider of secure, cloud-based software solutions for financial institutions, supporting digital transformation through its SaaS model, multi-product platform (MeridianLink One), and Partner Marketplace. The company aims to grow by expanding its customer base, cross-selling solutions, and investing in R&D, including through strategic acquisitions like StreetShares and OpenClose - MeridianLink provides cloud-based software solutions for financial institutions, including loan origination, digital lending, data verification, and data analytics, delivered primarily via a SaaS model[112](index=112&type=chunk)[115](index=115&type=chunk) - The company's multi-product platform, MeridianLink One, is designed for comprehensive integration and adaptability to customer needs, supported by a Partner Marketplace for third-party capabilities[113](index=113&type=chunk)[114](index=114&type=chunk)[122](index=122&type=chunk) - Growth strategy includes expanding the customer base (focusing on middle-market financial institutions, with potential for smaller/larger), investing in R&D (organically and through acquisitions like StreetShares and OpenClose), and leveraging strategic partnerships[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Global Considerations](index=29&type=section&id=Global%20Considerations) The company is actively monitoring the impact of economic uncertainty, rising inflation, and increasing interest rates on its business. These factors may lead to reduced spending on products, increased operating costs, and lower transaction volumes, prompting the company to take precautionary measures - Economic uncertainty, rising inflation, and increasing interest rates may adversely affect the business by reducing demand for mortgages and consumer lending, increasing operating costs, and limiting access to capital[124](index=124&type=chunk)[125](index=125&type=chunk) - The company is actively monitoring these factors and may take actions to alter business operations to preserve capital and liquidity[126](index=126&type=chunk) [Recent Developments](index=29&type=section&id=Recent%20Developments) In February 2023, the company authorized a Restructuring Plan to consolidate functions and improve efficiencies, resulting in an approximately 11% workforce reduction and total charges of $3.6 million for severance and related costs during the nine months ended September 30, 2023 - A Restructuring Plan was authorized in February 2023 to consolidate functions, align teams with business priorities, and improve efficiencies[127](index=127&type=chunk) - The plan resulted in an estimated **11%** reduction of the workforce[129](index=129&type=chunk) - Total restructuring charges of **$3.6 million** for severance and related costs (net of share-based compensation) were recognized during the nine months ended September 30, 2023[130](index=130&type=chunk) [Key Operating Measures](index=31&type=section&id=Key%20Operating%20Measures) The company monitors key operating measures including Total Customers, Annual Recurring Revenue (ARR), Organic Customer Growth Rate, and ARR Net Retention Rate. While methodologies have been refined, the metrics show a slight increase in total customers and ARR, but a negative organic customer growth rate and a slight decrease in ARR net retention rate for the period ended September 30, 2023 Key Operating Measures | Metric | As of Sep 30, 2023 | As of Sep 30, 2022 | | :-------------------------- | :----------------- | :----------------- | | Total Customers | **2,023** | **1,950** | | Annual Recurring Revenue (ARR) | **$257.1 million** | **$249.1 million** | | Organic Customer Growth Rate | **(0.5%)** | **2.5%** | | ARR Net Retention Rate | **97.7%** | **98.9%** | - The company refined its methodology for tracking key operating measures, resulting in immaterial adjustments to prior period figures[132](index=132&type=chunk) [Components of Operating Results](index=32&type=section&id=Components%20of%20Operating%20Results) Operating results are categorized into revenues (subscription fees, professional services, other), cost of revenues (personnel, third-party, hosting, amortization), and operating expenses (general & administrative, R&D, sales & marketing). Gross margin for the three and nine months ended September 30, 2023, was 64.7% and 63.6%, respectively - Revenues consist of subscription fees (primary, volume-based), professional services (implementation, consulting), and other revenues (referral/marketing agreements)[139](index=139&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk) - Cost of revenues includes personnel, third-party vendor fees, cloud-based hosting, and amortization of developed technology[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) Gross Margin | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Margin | **64.7%** | **61.2%** | **63.6%** | **63.4%** | - Operating expenses include General and Administrative (administrative, finance, legal, HR, consulting, depreciation, amortization of acquired intangibles), Research and Development (personnel, contractors, software development), and Sales and Marketing (personnel, commissions, advertising)[149](index=149&type=chunk)[150](index=150&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[155](index=155&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and nine months ended September 30, 2023, versus 2022, highlighting changes in revenues, cost of revenues, gross profit, operating expenses, and net income/loss [Revenues, net](index=36&type=section&id=Revenues,%20net) Net revenues increased by 7% for the three months and 5% for the nine months ended September 30, 2023, driven by growth in Lending Software Solutions, partially offset by a decline in Data Verification Services. A $2.3 million revenue reduction was recorded in 9M 2023 due to a commercial dispute Revenues, net (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :----- | :---------- | :---------- | :--------- | :--------- | | 3 Months | $76.5 million | $71.8 million | $4.7 million | **7%** | | 9 Months | $229.0 million | $217.5 million | $11.5 million | **5%** | - The increase in revenues was primarily due to increased revenue from Lending Software Solutions (new and ramping customers, increased volume), partially offset by decreased revenue from Data Verification Services (decline in mortgage refinance application volumes)[162](index=162&type=chunk) - A **$2.3 million** reduction in Lending Software Solutions revenue for the nine months ended September 30, 2023, was due to a commercial dispute with a channel reseller[163](index=163&type=chunk) [Cost of Revenues and Gross Profit](index=36&type=section&id=Cost%20of%20Revenues%20and%20Gross%20Profit) Subscription and services cost of revenues decreased by 6% for the three months ended September 30, 2023, but increased by 2% for the nine months. Amortization of developed technology increased by 13% and 20% for the three and nine months, respectively. Gross profit increased by 13% for the three months and 6% for the nine months Cost of Revenues (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Subscription and services | $22.5 million | $23.8 million | $70.0 million | $68.3 million | | Amortization of Developed Technology | $4.5 million | $4.0 million | $13.5 million | $11.3 million | - Subscription and services cost of revenues decreased in Q3 2023 due to lower third-party costs and share-based compensation, but increased for 9M 2023 due to higher cloud-based data storage costs[164](index=164&type=chunk)[165](index=165&type=chunk) - Amortization of developed technology increased due to internally developed software and amortization from the OpenClose and StreetShares acquisitions[166](index=166&type=chunk)[167](index=167&type=chunk) Gross Profit (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :----- | :---------- | :---------- | :--------- | :--------- | | 3 Months | $49.5 million | $43.9 million | $5.5 million | **13%** | | 9 Months | $145.6 million | $137.9 million | $7.7 million | **6%** | [Operating Expenses](index=37&type=section&id=Operating%20Expenses) General and administrative expenses increased by 8% (3M) and 16% (9M) due to higher share-based compensation and amortization. Research and development expenses decreased by 2% (3M) but increased by 21% (9M) due to personnel costs. Sales and marketing expenses significantly increased by 50% (3M) and 59% (9M) due to headcount and commissions. Acquisition-related costs decreased by 100% as no acquisitions occurred in 2023, while restructuring costs of $3.6 million were incurred in 9M 2023 Operating Expenses (in millions) | Expense Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | General and administrative | $23.2 million | $21.4 million | $70.2 million | $60.4 million | | Research and development | $11.2 million | $11.5 million | $36.8 million | $30.4 million | | Sales and marketing | $9.4 million | $6.3 million | $26.2 million | $16.5 million | | Acquisition related costs | $0 thousand | $163 thousand | $0 thousand | $2.5 million | | Restructuring related costs | $0 thousand | $0 thousand | $3.6 million | $0 thousand | - General and administrative expenses increased primarily due to higher share-based compensation and amortization of intangible assets from recent acquisitions[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - Sales and marketing expenses saw significant increases due to higher personnel-related expenses from increased headcount, commissions, and share-based compensation[175](index=175&type=chunk)[176](index=176&type=chunk) - Acquisition-related costs decreased by **100%** for both periods in 2023 as there were no acquisitions or related strategic opportunities pursued[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) [Total Other Expense, net](index=39&type=section&id=Total%20Other%20Expense,%20net) Total other expense, net, increased by 29% for the three months and 60% for the nine months ended September 30, 2023, primarily due to higher interest expense from rising rates on the variable rate term loan, partially offset by increased interest income Total Other Expense, net (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :----- | :---------- | :---------- | :--------- | :--------- | | 3 Months | $8.4 million | $6.5 million | $1.9 million | **29%** | | 9 Months | $25.5 million | $15.9 million | $9.6 million | **60%** | - The increase was primarily driven by higher interest expense due to rising rates on the variable rate term loan, partially offset by increased interest income from the company's money market mutual fund[181](index=181&type=chunk)[182](index=182&type=chunk) [(Benefit from) Provision for Income Taxes](index=39&type=section&id=(Benefit%20from)%20Provision%20for%20Income%20Taxes) The company recorded an income tax benefit of $0.8 million for the three months and $3.8 million for the nine months ended September 30, 2023, a significant decrease from the prior year's provision, primarily due to a decrease in earnings before income tax (Benefit from) Provision for Income Taxes (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :----- | :---------- | :---------- | :--------- | :--------- | | 3 Months | $(0.8 million) | $0.9 million | $(1.7 million) | (190)% | | 9 Months | $(3.8 million) | $5.3 million | $(9.1 million) | (172)% | - The decrease in the provision for income taxes (resulting in a benefit) was primarily due to a decrease in earnings before income tax during the respective periods in 2023[183](index=183&type=chunk)[184](index=184&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily supported by cash flows from operations, long-term debt, and IPO proceeds. As of September 30, 2023, it had $97.6 million in cash and $50.0 million in unused revolving credit. Cash flows from investing activities significantly increased due to a $30.0 million escrow release, while financing activities used more cash due to stock repurchases [Sources of Liquidity](index=40&type=section&id=Sources%20of%20Liquidity) This section identifies the company's primary sources of cash and available credit, including cash flows from operations, long-term debt, and unused revolving credit facilities - Principal sources of liquidity are cash flows from operations, long-term debt, and IPO proceeds[185](index=185&type=chunk) - As of September 30, 2023, the company had **$97.6 million** in cash and cash equivalents and **$50.0 million** in unused capacity under its revolving line of credit[186](index=186&type=chunk) - A **$30.0 million** escrow deposit related to the StreetShares acquisition was released back to the company during the three months ended June 30, 2023[186](index=186&type=chunk) [Debt](index=40&type=section&id=Debt) This section refers to Note 6 for a comprehensive description of the company's long-term debt and related terms - For a detailed description of the company's debt, refer to Note 6 to the unaudited condensed consolidated financial statements[191](index=191&type=chunk) [Cash Flows](index=40&type=section&id=Cash%20Flows) This section provides a detailed breakdown of cash flows from operating, investing, and financing activities, highlighting significant changes and their drivers Summary of Cash Flows (in millions) | Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Operating activities | $55.5 million | $67.2 million | $(11.7 million) | (17)% | | Investing activities | $24.2 million | $(60.4 million) | $84.5 million | 140% | | Financing activities | $(37.9 million) | $(4.8 million) | $(33.1 million) | (693)% | | Net increase in cash, cash equivalents | $41.8 million | $2.1 million | $39.7 million | 1,883% | - Net cash provided by operating activities decreased by **17%** for the nine months ended September 30, 2023, primarily due to a net loss, partially offset by non-cash charges and changes in operating assets and liabilities[195](index=195&type=chunk)[196](index=196&type=chunk) - Net cash provided by investing activities significantly increased due to the **$30.0 million** release from escrow, partially offset by capitalized software additions[197](index=197&type=chunk) - Net cash used in financing activities increased substantially due to **$35.7 million** in common stock repurchases and principal debt payments[199](index=199&type=chunk) [Recent Accounting Pronouncements](index=41&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 of the financial statements for a description of recent accounting pronouncements, including adoption dates and estimated effects - For a description of recent accounting pronouncements, including expected adoption dates and estimated effects, refer to Note 2, 'Significant Accounting Policies' in Part I, Item 1[201](index=201&type=chunk) [Emerging Growth Company Status](index=42&type=section&id=Emerging%20Growth%20Company%20Status) The company is an emerging growth company under the JOBS Act and has elected to use the extended transition period for new or revised accounting standards, which may result in financial results not being comparable to other public companies - MeridianLink is an emerging growth company as defined in the JOBS Act[202](index=202&type=chunk) - The company has elected to use the extended transition period for complying with new or revised accounting standards, which may affect comparability with other public companies[202](index=202&type=chunk) - The emerging growth company status will be maintained until December 31, 2026, or earlier if certain revenue or market value thresholds are met[351](index=351&type=chunk) [Critical Accounting Estimates](index=42&type=section&id=Critical%20Accounting%20Estimates) There have been no material changes to the company's critical accounting estimates since December 31, 2022, except for updates resulting from the adoption of ASU 2016-13, 'Financial Instruments—Credit Losses (Topic 326).' - No material changes to critical accounting estimates since December 31, 2022, except for updates from the adoption of ASU 2016-13[203](index=203&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no significant changes in the company's exposures to market risk since December 31, 2022 - No significant changes in exposures to market risk since December 31, 2022[205](index=205&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023. No material changes in internal control over financial reporting occurred during the quarter, though inherent limitations on control effectiveness are acknowledged - Disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of September 30, 2023[206](index=206&type=chunk)[207](index=207&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended September 30, 2023[208](index=208&type=chunk) - Management acknowledges the inherent limitations on the effectiveness of control systems, which can only provide reasonable, not absolute, assurance[209](index=209&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part addresses legal proceedings, risk factors, equity security sales, defaults, other disclosures, and exhibits filed with the report [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any litigation or claims that would have a material adverse effect on its business, operating results, financial condition, or cash flows, though it is subject to ordinary course legal matters - 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 flows[212](index=212&type=chunk) - The Company is, from time to time, party to litigation and subject to claims in the ordinary course of business[212](index=212&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section outlines substantial risks and uncertainties that could adversely affect the company's business, financial condition, results of operations, cash flow, and stock price. These risks are categorized into strategy and industry, business and operations, legal and regulatory matters, finance and accounting, potential conflicts of interest, and common stock and governance structure [Summary of Risk Factors](index=44&type=section&id=Summary%20of%20Risk%20Factors) This section provides an overview of the company's key risk categories, encompassing strategic, operational, legal, financial, and governance-related factors - Risks related to strategy and industry include economic factors affecting the mortgage lending market, failure to retain or attract customers, inability to innovate, and competitive dynamics[217](index=217&type=chunk) - Risks related to business and operations include personnel retention, dependence on product partners, data protection failures, integration challenges, and the seasonal/cyclical nature of the business[217](index=217&type=chunk)[220](index=220&type=chunk) - Risks related to legal and regulatory matters include compliance failures, data collection restrictions, and changes in laws and regulations[219](index=219&type=chunk)[220](index=220&type=chunk) - Risks related to finance and accounting include fluctuations in performance, inaccurate forecasts, goodwill impairment, high indebtedness, and changes in tax laws[220](index=220&type=chunk) - Risks related to potential conflicts of interests and related parties highlight Thoma Bravo's controlling stake[221](index=221&type=chunk) - Risks related to common stock and governance structure include market conditions, dilution, dividend policy, and anti-takeover provisions[222](index=222&type=chunk) [Risks Related to Our Strategy and Industry](index=45&type=section&id=Risks%20Related%20to%20Our%20Strategy%20and%20Industry) The company faces significant risks from the highly competitive and regulated financial services industry, including reduced mortgage lending volumes due to rising interest rates, challenges in customer acquisition and retention, the need for continuous platform innovation, and difficulties in integrating acquired businesses. Dependence on the financial services industry makes the company vulnerable to industry downturns or consolidation - Mortgage lending market volume has been lower in 2023 due to increased mortgage interest rates, which could adversely affect the business and demand for non-mortgage loans[223](index=223&type=chunk)[224](index=224&type=chunk)[226](index=226&type=chunk) - Failure to increase the number of customers or retain existing ones, due to competition or lack of innovation in legacy products, could harm the business[227](index=227&type=chunk)[228](index=228&type=chunk)[230](index=230&type=chunk) - Inability to accurately predict customer subscription renewals or adoption rates, or facing pricing pressure from competitors, could adversely affect revenues and operating results[231](index=231&type=chunk)[232](index=232&type=chunk) - Failure to continuously innovate the platform and address evolving technological requirements could render software solutions obsolete or less competitive, reducing revenue growth[233](index=233&type=chunk)[234](index=234&type=chunk) - Acquisitions (e.g., OpenClose, StreetShares) or business partnerships may be difficult to integrate, divert management attention, dilute stockholder value, and may not yield expected benefits[237](index=237&type=chunk)[239](index=239&type=chunk)[241](index=241&type=chunk) - The highly competitive and fragmented markets, with existing and new competitors enjoying substantial advantages, could adversely affect growth, revenues, and market share[242](index=242&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - Exclusive reliance on customers in the financial services industry makes the business vulnerable to industry downturns, consolidation, or decreased technology spending[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) [Risks Related to Our Business and Operations](index=51&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) Operational risks include the adverse impact of economic uncertainty (inflation, interest rates, COVID-19), potential security breaches compromising customer data, defects in software solutions, and challenges in integrating with third-party systems. The company also faces risks related to meeting service level commitments, the unpredictability of its sales cycle, the need to expand sales and marketing, dependence on product partners, and the ability to retain key personnel and manage growth while relying on third-party data centers and offshore development - Uncertain or weakened economic conditions, including rising interest rates, inflation, and the COVID-19 pandemic, may continue to adversely affect the industry, business, and results of operations by impacting technology spending and transaction volumes[253](index=253&type=chunk)[256](index=256&type=chunk) - A breach or compromise of security measures could result in unauthorized access to customer or client data, leading to reputational damage, operational disruptions, and substantial legal and financial liability[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) - Defects, errors, or other performance problems in software solutions could harm reputation, result in significant costs, impair sales, and subject the company to substantial liability[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) - Inability to effectively integrate software solutions with other third-party systems or performance issues with such systems could adversely affect operations and functionality[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) - Failure to meet service level commitments could obligate the company to provide credits or refunds or face contract terminations, adversely affecting business and financial condition[273](index=273&type=chunk) - The sales cycle can be unpredictable, time-consuming, and costly, leading to less predictability in business and operating results[278](index=278&type=chunk) - Dependence on key and highly skilled personnel, and the ability to attract and retain them, is crucial for business development and marketing; workforce reductions may impact this ability[285](index=285&type=chunk)[286](index=286&type=chunk) - Reliance on third-party data centers and cloud hosting providers means any disruption in these facilities or internet access could adversely affect the business[289](index=289&type=chunk)[291](index=291&type=chunk) - Contracting a significant portion of product development to unrelated third parties in India poses risks related to efficiency, intellectual property, quality, and geopolitical stability[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk) [Risks Related to Legal and Regulatory Matters](index=60&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Matters) The company operates in a complex legal and regulatory environment, facing risks from potential litigation, challenges in protecting intellectual property, and the use of open-source software. Compliance with evolving privacy laws (e.g., CCPA, CPRA) and regulations applicable to financial technology providers (e.g., GLBA, FCRA) is critical, with non-compliance potentially leading to reputational damage, fines, and operational disruptions. Changes in financial services legislation or anti-bribery laws could also adversely affect the business - Future litigation could damage the company's reputation, be costly, and time-consuming to defend, diverting management's attention and resources[295](index=295&type=chunk) - Inability to protect intellectual property (copyrights, trademarks, patents, trade secrets) against unauthorized copying or use could adversely affect the business and competitive advantage[296](index=296&type=chunk)[297](index=297&type=chunk) - Use of open-source software in solutions could subject the company to litigation or other actions, or negatively affect its ability to sell solutions[298](index=298&type=chunk)[299](index=299&type=chunk) - Privacy, information security, and data protection concerns, along with evolving domestic regulations (e.g., CCPA, CPRA), may limit the use and adoption of software solutions and increase compliance costs[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) - Failure to comply with laws and regulations applicable to technology providers to financial institutions (e.g., GLBA, FCRA) could adversely affect the business, increase costs, and impose operational constraints[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) - Changes in current legislation or new legislation in the heavily regulated financial services industry could negatively impact customer business, solution usage, and require costly updates to software solutions[310](index=310&type=chunk)[311](index=311&type=chunk) - Failure to comply with anti-bribery, anti-corruption (e.g., FCPA), and similar laws could subject the company to penalties, fines, and reputational damage[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk) [Risks Related to Finance and Accounting](index=64&type=section&id=Risks%20Related%20to%20Finance%20and%20Accounting) Financial risks include significant fluctuations in quarterly results due to various factors, potential inaccuracies in forecasts, and the delayed reflection of business downturns in revenue recognition. The company also faces risks related to goodwill impairment, high leverage with restrictive debt covenants, challenges in securing additional financing, and the impact of the LIBOR phase-out and changes in tax laws - Quarterly results may fluctuate significantly due to economic conditions, customer retention, transaction volumes, operating expenses, acquisitions, and seasonality, potentially not fully reflecting underlying business performance[316](index=316&type=chunk)[317](index=317&type=chunk) - Forecasts are subject to significant risks, assumptions, and uncertainties, which may cause actual revenues, expenses, and profitability to differ materially from expectations, potentially leading to impairment charges for acquired entities[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk)[322](index=322&type=chunk) - Due to ratable revenue recognition for subscription fees, downturns or upturns in business may not be fully reflected in results of operations until future periods[323](index=323&type=chunk)[324](index=324&type=chunk) - A significant amount of goodwill and other intangibles means potential impairment could require a significant charge to earnings, materially affecting financial condition and results of operations[325](index=325&type=chunk) - High leverage and substantial indebtedness, coupled with restrictive covenants in debt agreements, limit financial flexibility and increase vulnerability to adverse business conditions[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk) - The company may not be able to secure sufficient additional financing on favorable terms, or at all, to meet future capital needs, especially given current capital market conditions[331](index=331&type=chunk) - The phase-out of LIBOR and transition to SOFR could increase interest rates on variable rate debt, adversely impacting interest expense, results of operations, and cash flows[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) - Amendments to existing or enactment of new unfavorable tax laws (e.g., TCJA, IRA) could adversely affect the company's tax expense and financial position[335](index=335&type=chunk)[336](index=336&type=chunk) [Risks Related to Potential Conflicts of Interests and Related Parties](index=69&type=section&id=Risks%20Related%20to%20Potential%20Conflicts%20of%20Interests%20and%20Related%20Parties) Thoma Bravo's controlling stake (approximately 51.2% of common stock) means the company is a controlled company, allowing it to rely on NYSE corporate governance exemptions. This concentration of ownership gives Thoma Bravo significant influence over corporate matters, potentially delaying or preventing changes of control and allowing them to pursue corporate opportunities independent of the company, which could create conflicts of interest - Thoma Bravo and its related entities beneficially own approximately **51.2%** of the company's outstanding common stock, making it a controlled company under NYSE rules and allowing it to rely on certain corporate governance exemptions[337](index=337&type=chunk)[338](index=338&type=chunk) - Thoma Bravo's controlling influence allows it to determine the outcome of matters requiring stockholder approval, including board composition, mergers, and charter amendments, potentially delaying or preventing changes of control[338](index=338&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk) - Thoma Bravo may pursue corporate opportunities independent of the company, which could present conflicts with the company's and other stockholders' interests[343](index=343&type=chunk)[344](index=344&type=chunk) [Risks Related to Our Common Stock and Governance Structure](index=70&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock%20and%20Governance%20Structure) The company's common stock trading price could be volatile due to various factors. As an emerging growth company, it benefits from certain exemptions but may be less attractive to some investors. Future issuance of capital stock could dilute existing stockholders, and the company does not intend to pay dividends. The stock repurchase program may not enhance long-term value, and Delaware law and charter provisions could delay or prevent a change in control - The trading price of the common stock could be volatile due to general economic conditions, industry trends, company-specific announcements, and market sentiment, potentially leading to loss of investment[345](index=345&type=chunk)[346](index=346&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk) - As an emerging growth company, the company is exempt from certain public company requirements, which may make its common stock less attractive to some investors and increase price volatility[350](index=350&type=chunk)[352](index=352&type=chunk) - Any future issuance or sale of capital stock (e.g., for equity financings, acquisitions, incentive plans) may adversely affect the market price and dilute existing stockholders' ownership interests[353](index=353&type=chunk)[354](index=354&type=chunk) - The company does not intend to pay dividends on its common stock, meaning stockholders' return on investment will depend solely on stock price appreciation[355](index=355&type=chunk) - The stock repurchase program may not be fully consummated or enhance long-term stockholder value, and could increase stock price volatility or diminish cash reserves[356](index=356&type=chunk) - Delaware law and certain provisions in the company's charter and bylaws (e.g., classified board, preferred stock issuance, restrictions on stockholder action) could delay, discourage, or prevent a change in control[357](index=357&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) - Bylaws designate the Delaware Court of Chancery as the exclusive forum for certain litigation, potentially limiting stockholders' ability to obtain a favorable judicial forum[361](index=361&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section summarizes the company's stock repurchase activity for the three months ended September 30, 2023. During this period, 1,845,708 shares were repurchased at an average price of $16.53 per share, with approximately $36.0 million remaining under the authorized program Stock Repurchase Activity (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------ | :------------------------------- | :--------------------------- | | July 1 to July 31, 2023 | — | $— | | August 1 to August 31, 2023 | — | $— | | September 1 to September 30, 2023 | 1,845,708 | $16.53 | | Total | 1,845,708 | | - As of September 30, 2023, approximately **$36.0 million** remained available for repurchase under the **$75.0 million** stock repurchase program authorized in May 2022[362](index=362&type=chunk) [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[363](index=363&type=chunk) [Item 4. Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[364](index=364&type=chunk) [Item 5. Other Information](index=74&type=section&id=Item%205.%20Other%20Information) During the quarter ended September 30, 2023, the Chief Financial Officer, Sean Blitchok, adopted a Rule 10b5-1 trading plan for the sale of up to 107,921 shares of common stock - On August 9, 2023, Sean Blitchok, Chief Financial Officer, adopted a Rule 10b5-1 trading plan for the sale of up to an aggregate of 107,921 shares of common stock[365](index=365&type=chunk) [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL data files - Exhibits include the Certificate of Incorporation, Bylaws, Specimen Common Stock Certificate, Registration Rights Agreement, various certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents[367](index=367&type=chunk) [Signatures](index=76&type=section&id=Signatures) The report is duly signed on November 3, 2023, by Nicolaas Vlok, Chief Executive Officer, and Sean Blitchok, Chief Financial Officer - The report was signed on November 3, 2023, by Nicolaas Vlok (Chief Executive Officer) and Sean Blitchok (Chief Financial Officer)[371](index=371&type=chunk)