10-Q 1 mlnk-20240331.htm 10-Q mlnk-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_______
Commission file number: 001-40680
____________________________
MeridianLink, Inc.
(Exact Name of Registrant as Specified in its Charter)
______________________________
Delaware82-4844620
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
3560 Hyland Avenue, Suite 200, Costa Mesa, CA
92626
(Address of Principal Executive Offices)(Zip Code)
(714708-6950
(Registrant’s Telephone Number, Including Area Code)
______________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareMLNKThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filerx
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyx
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  o    No  x
As of May 3, 2024, there were 76,708,674 shares of the registrant’s common stock, par value $0.001 per share, outstanding.



MeridianLink, Inc.
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2024 and 2023
PART II. OTHER INFORMATION
This Quarterly Report on Form 10-Q includes trademarks, such as MeridianLink®, which are protected under applicable intellectual property laws and are the property of MeridianLink, Inc. or its subsidiaries. This Quarterly Report on Form 10-Q also contains trademarks, service marks, copyrights, and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.



PART I
Item 1. Financial Statements
MERIDIANLINK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
As of
March 31, 2024
December 31, 2023
Assets
Current assets:
Cash and cash equivalents
$62,285$80,441
Accounts receivable, net
36,62332,412
Prepaid expenses and other current assets
12,23811,574
Total current assets
111,146124,427
Property and equipment, net3,0113,337
Right of use assets, net9671,140
Intangible assets, net238,818251,060
Goodwill610,063610,063
Other assets6,4956,224
Total assets
$970,500 $996,251
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$4,135$4,405
Accrued liabilities
28,36930,673
Deferred revenue
37,68317,224
Current portion of debt, net of debt issuance costs
3,5433,542
Total current liabilities
73,73055,844
Debt, net of debt issuance costs419,102420,004
Deferred tax liabilities, net10,63910,823
Long-term deferred revenue257792
Other long-term liabilities439541
Total liabilities
504,167488,004
Commitments and contingencies (Note 5)
Stockholders’ Equity:
Preferred stock, $0.001 par value; 50,000,000 shares authorized; zero shares issued and outstanding at March 31, 2024 and December 31, 2023
Common stock, $0.001 par value; 600,000,000 shares authorized, 76,338,829 and 78,447,701 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
127129
Additional paid-in capital662,403654,634
Accumulated deficit(196,197)(146,516)
Total stockholders’ equity466,333508,247
Total liabilities and stockholders’ equity$970,500$996,251
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3


MERIDIANLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
Three Months Ended March 31,
20242023
Revenues, net$77,816 $77,135 
Cost of revenues:
Subscription and services
21,344 23,501 
Amortization of developed technology
4,729 4,454 
Total cost of revenues26,073 27,955 
Gross profit
51,743 49,180 
Operating expenses:
General and administrative
25,179 22,555 
Research and development
9,485 13,812 
Sales and marketing
10,536 8,213 
Restructuring related costs3,191 2,904 
Total operating expenses48,391 47,484 
Operating income3,352 1,696 
Other (income) expense, net:
Interest and other income(956)(470)
Interest expense9,582 9,031 
Total other expense, net8,626 8,561 
Loss before income taxes(5,274)(6,865)
Provision for (benefit from) income taxes32 (1,199)
Net loss$(5,306)$(5,666)
Net loss per share:
Basic$(0.07)$(0.07)
Diluted$(0.07)$(0.07)
Weighted average common stock outstanding:
Basic77,335,072 80,659,978 
Diluted77,335,072 80,659,978 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4


MERIDIANLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except share data)
Common StockAdditional Paid-in CapitalAccumulated DeficitStockholders’ Equity
SharesAmount
Balance at December 31, 202378,447,701 $129$654,634 $(146,516)$508,247 
Vesting of restricted stock units (“RSUs”)
261,847 — — — 
Issuance of common stock due to exercise of stock options26,856 191 — 191 
Shares withheld related to net share settlement of RSUs8,440 (294)— (294)
Repurchases of common stock(2,406,015)(2)— (44,375)(44,377)
Share-based compensation expense— 7,872 — 7,872 
Net loss— — (5,306)(5,306)
Balance at March 31, 202476,338,829 $127$662,403 $(196,197)$466,333
5


MERIDIANLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except share data)
Common StockAdditional Paid-in CapitalAccumulated DeficitStockholders’ Equity
SharesAmount
Balance at December 31, 202280,644,452$128$621,396$(42,433)$579,091
Vesting of restricted stock awards59,5584— 4
Vesting of RSUs65,770
Issuance of common stock due to exercise of stock options97,412594594
Shares withheld related to net share settlement of RSUs(1,769)(24)(24)
Repurchases of common stock(228,529)(3,499)(3,499)
Share-based compensation expense4,9394,939
Net loss(5,666)(5,666)
Balance at March 31, 202380,636,894 $132$626,905 $(51,598)$575,439
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6


MERIDIANLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net loss$(5,306)$(5,666)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
14,52414,531
Provision for expected credit losses234532
Amortization of debt issuance costs
212235
Share-based compensation expense7,8034,891
Deferred income taxes
(184)(1,198)
Loss on disposal of property and equipment6
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(4,444)(5,028)
Prepaid expenses and other assets
(960)(1,636)
Accounts payable
(270)2,717
Accrued liabilities
(2,501)1,706
Deferred revenue
19,92416,997
Net cash provided by operating activities29,03828,081
Cash flows from investing activities:
Capitalized software additions
(1,837)(1,924)
Purchases of property and equipment
(92)(134)
Net cash used in investing activities(1,929)(2,058)
Cash flows from financing activities:
Repurchases of common stock(44,000)(3,490)
Proceeds from exercise of stock options191594
Taxes paid related to net share settlement of restricted stock units(294)(24)
Principal payments of debt(1,088)(1,087)
Payments of deferred offering costs(74)
Net cash used in financing activities(45,265)(4,007)
Net (decrease) increase in cash and cash equivalents(18,156)22,016
Cash and cash equivalents, beginning of period80,44155,780
Cash and cash equivalents, end of period$62,285$77,796

7


MERIDIANLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended March 31,
20242023
Supplemental disclosures of cash flow information:
Cash paid for interest
$9,365$9,019
Cash paid for income taxes
3250
Non-cash investing and financing activities:
Shares withheld with respect to net settlement of restricted stock units29424
Excise taxes payable included in repurchases of common stock3779
Share-based compensation expense capitalized to software additions6948
Purchase price allocation adjustment related to income tax effects for StreetShares acquisition245
Purchases of property and equipment included in accounts payable and accrued liabilities4479
Vesting of restricted stock awards and restricted stock units4
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
8

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Organization and Description of Business
MeridianLink, Inc., and its wholly-owned subsidiaries, (collectively, the “Company”) provides secure, cloud-based digital solutions that transform the ways in which traditional and emerging financial services providers engage with account holders and end users. The Company sells its solutions to financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies. The Company delivers its solutions to the substantial majority of its customers using a software-as-a-service (“SaaS”) model under which its customers pay subscription fees for the use of the Company’s solutions. The Company is headquartered in Costa Mesa, California.
Note 2 – Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.
The interim condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed consolidated financial position as of March 31, 2024, its condensed consolidated results of operations for the three months ended March 31, 2024 and 2023 and its cash flows for the three months ended March 31, 2024 and 2023. The financial data and the other financial information disclosed in the notes to the condensed consolidated financial statements related to the three months ended March 31, 2024 and 2023 and as of March 31, 2024, are also unaudited. The condensed consolidated balance sheet as of December 31, 2023, included herein, and financial information as of December 31, 2023, disclosed in the notes to the condensed consolidated financial statements was derived from the audited consolidated financial statements as of that date.
The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on March 12, 2024 (“2023 Annual Report on Form 10-K”).
Operating and Reportable Segment
The Company operates and manages its business and financial information on a consolidated basis for the purposes of evaluating financial performance and the allocation of resources. The Company's management determined that it operates in one operating and reportable segment that is focused exclusively on providing cloud-based digital solutions in the United States. In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the information provided to the CODM, and how that information is used to make operating decisions, allocate resources, and assess performance. The Company's CODM is the chief executive officer. The results of operations provided to and analyzed by the CODM are at the consolidated level, and accordingly, key resource decisions and assessment of performance are performed at the consolidated level. The Company assesses its determination of operating segments at least annually.
9

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses. Certain items subject to such estimates include the fair value of acquired intangible assets; the capitalization of software development costs; the useful lives of long-lived intangible assets; impairment of goodwill and long-lived assets; and income taxes, including the valuation allowance for deferred income taxes. In accordance with GAAP, management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantly from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 2, “Significant Accounting Policies” in the Company’s 2023 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies described in the Company’s 2023 Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes.
Accounting Pronouncements Not Yet Adopted
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and has elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies.
ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”
Accounting Standard Update (“ASU”) 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company for annual periods beginning after December 15, 2025, on a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its condensed consolidated financial statements and related disclosures.
ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”
ASU 2023-07 requires enhanced disclosures about significant segment expenses and other segment items and requires companies to disclose all annual disclosures about segments in interim periods. The new standard also permits companies to disclose more than one measure of segment profit or loss, requires disclosure of the title and position of the CODM, and requires companies with a single reportable segment to provide all disclosures required by Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and companies are required to apply the ASU retrospectively to all periods presented. The Company is currently evaluating the impact that adoption of this standard will have on its condensed consolidated financial statements and related disclosures.
10

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Note 3 – Revenue Recognition
Disaggregation of Revenue
The following table disaggregates the Company’s net revenues by solution type (in thousands):
Three Months Ended March 31,
20242023
Lending Software Solutions
$60,903 $58,001 
Data Verification Software Solutions
16,913 19,134 
Total$77,816 $77,135 
The following table disaggregates the Company’s net revenues by major source (in thousands):
Three Months Ended March 31,
20242023
Subscription fees$65,912 $66,405 
Professional services9,010 8,435 
Other2,894 2,295 
Total$77,816 $77,135 
Contract Balances
The following table presents amounts related to customer contract-related arrangements, which are included on the condensed consolidated balance sheets as follows (in thousands):
As of March 31,As of January 1, As of March 31,As of January 1,
2024202420232023
Accounts receivable$34,441 $30,314 $35,722 $29,010 
Unbilled receivables2,182 2,098 1,679 3,895 
Accounts receivable, net$36,623 $32,412 $37,401 $32,905 
Deferred revenue, current$37,683 $17,224 $34,090 $16,945 
Long-term deferred revenue$257 $792 $992 $1,141 
Unbilled receivables primarily result from revenue being recognized when or as control of a solution or service is transferred to the customer, but where invoicing is contingent upon the completion of other performance obligations or where the contract provides that payment timing differs from the provisioning of services. Unbilled receivables and accounts receivable, net of the allowance for expected credit losses, are included within accounts receivable, net on the Company’s consolidated balance sheets. Accounts receivable and unbilled receivables will increase or decrease based on the timing of invoices, customer payments, and recognition of revenue.
Deferred Revenue
The balance of deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Significant changes in our deferred revenue balances during the three months ended March 31, 2024 and 2023 were as follows (in thousands):
11

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
As of March 31,
20242023
Deferred revenue, beginning balance$18,016 $18,086 
Billing of transaction consideration97,740 94,131 
Revenue recognized(77,816)(77,135)
Deferred revenue, ending balance$37,940 $35,082 
Deferred revenue, current$37,683 $34,090 
Long-term deferred revenue257 992 
Total deferred revenue$37,940 $35,082 
Accounts Receivable and Allowance for Credit Losses
A rollforward of the Company’s allowance for expected credit losses balance for the three months ended March 31, 2024, and 2023, is as follows (in thousands):
As of March 31,
20242023
Allowance for expected credit losses, beginning balance$514 $165 
Provision for expected credit losses 234 532 
Write offs, net(115)(33)
Allowance for expected credit losses, ending balance$633 $664 
Assets Recognized from Costs to Obtain a Contract with a Customer
Current costs for assets recognized from costs to obtain a contract with a customer are included in prepaid expenses and other current assets, and non-current costs are included in other assets on the accompanying condensed consolidated balance sheets. The following table represents the changes in assets recognized from costs to obtain a contract with a customer, or contract cost assets (in thousands):
As of March 31,
20242023
Beginning balance$8,018 $6,539 
Additions1,024 1,151 
Amortization(980)(747)
Ending balance$8,062 $6,943 
Contract cost assets, current$3,845 $3,196 
Contract cost assets, noncurrent4,217 3,747 
Total contract cost assets
$8,062 $6,943 
There was no impairment of contract cost assets during the three months ended March 31, 2024, and 2023.
12

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Note 4 – Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
As of March 31,
As of December 31,
20242023
Prepaid expenses$7,149 $5,762 
Contract cost assets, current
3,845 3,782 
Income tax receivable459 961 
Other785 1,069 
Total prepaid expenses and other current assets$12,238 $11,574 
Cloud Computing Arrangements
Current costs for capitalized deferred implementation costs are included in prepaid expenses and other current assets, and non-current costs are included in other assets on the accompanying condensed consolidated balance sheets.Capitalized deferred implementation costs for cloud computing arrangements consisted of the following (in thousands):
As of March 31,
As of December 31,
20242023
Capitalized deferred implementation costs
$2,054 $1,779 
Accumulated amortization
(233)(208)
Capitalized deferred implementation costs, net
$1,821 $1,571 
Amortization expense for capitalized deferred implementation costs was immaterial for both the three months ended March 31, 2024, and 2023.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
As of March 31,
As of December 31,
20242023
Computer equipment and software $8,850 $8,794 
Leasehold improvements2,424 2,732 
Office equipment and furniture991 990 
Total12,265 12,516 
Accumulated depreciation
(9,254)(9,179)
Property and equipment, net$3,011 $3,337 
Depreciation expense amounted to $0.4 million, and $0.5 million for the three months ended March 31, 2024, and 2023, respectively.
13

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
As of March 31, 2024
Gross AmountAccumulated AmortizationNet Carrying Amount
Customer relationships$343,300 $(175,032)$168,268 
Developed technology96,400 (54,845)41,555 
Trademarks24,975 (13,430)11,545 
Non-competition agreements5,500 (1,988)3,512 
Capitalized software30,903 (16,965)13,938 
Total intangible assets, net$501,078 $(262,260)$238,818 
As of December 31, 2023
Gross AmountAccumulated AmortizationNet Carrying Amount
Customer relationships$343,300 $(166,485)$176,815 
Developed technology96,400 (52,039)44,361 
Trademarks24,975 (12,803)12,172 
Non-competition agreements5,500 (1,743)3,757 
Capitalized software28,997 (15,042)13,955 
Total intangible assets, net$499,172 $(248,112)$251,060 
For the three months ended March 31, 2024 and 2023, the Company capitalized $1.9 million, and $2.0 million, respectively, related to internally developed software costs.
The weighted average remaining useful lives for intangible assets as of March 31, 2024, were as follows:
Weighted Average Remaining Useful Life (in years)
Customer relationships5
Developed technology6
Trademarks5
Non-competition agreements4
Capitalized software2
Amortization expense related to intangible assets was as follows (in thousands):
Three Months Ended March 31,
20242023
Cost of revenues$4,729 $4,454 
General and administrative expense9,419 9,582 
Total amortization expense$14,148 $14,036 
14

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
The estimated future amortization of intangible assets as of March 31, 2024, was as follows (in thousands):
Years ending December 31,
2024 (remaining nine months)$42,210 
202550,697 
202644,872 
202742,272 
202824,901 
Thereafter33,866 
Total amortization expense$238,818 
No impairment of long-lived assets was recorded during either the three months ended March 31, 2024 or 2023.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
As of March 31,
As of December 31,
20242023
Accrued payroll and payroll-related expenses$8,237 $9,501 
Accrued operating costs4,371 3,655 
Sales tax liabilities from acquisitions3,383 3,383 
Accrued costs of revenues2,576 2,003 
Accrued bonuses2,476 6,424 
User conference accrual1,861 1,073 
Customer deposits1,243 1,302 
Operating lease liabilities – current778 773 
Other sales tax liabilities436 404 
Excise taxes payable756 379 
Other accrued liabilities2,252 1,776 
Total accrued liabilities$28,369 $30,673 
Note 5 – Commitments and Contingencies
Legal Matters
The Company is, and from time to time may be, involved in legal proceedings and claims arising out of the Company’s operations in the ordinary course of business. The Company accrues estimates for resolution of legal proceedings and other contingencies when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss is reasonably estimable. Management is not currently aware of any legal proceedings or claims against it that could have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
15

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Other Contractual Commitments
The Company’s contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription arrangements used to support operations at the enterprise level. Future minimum payments under the Company’s non-cancelable purchase commitments as of March 31, 2024, are as follows (in thousands):
Contractual Commitments
Years ending December 31,
2024 (remaining nine months)$2,398 
20251,115 
2026975 
Thereafter 
Total$4,488 
Note 6 – Debt
Debt consisted of the following (in thousands):
As of March 31,
As of December 31,
20242023
2021 Term loan
$426,300 $427,388 
Debt issuance costs
(3,655)(3,842)
Total debt, net
422,645 423,546 
Less: Current portion of debt
2021 Term loan4,350 4,350 
Debt issuance costs
(807)(808)
Total current portion of debt, net
3,543 3,542 
Total non-current portion of debt, net
$419,102 $420,004 
Amortization of debt issuance costs was $0.2 million and $0.2 million for the three months ended March 31, 2024, and 2023, respectively. Total interest expense, excluding amortization of debt issuance costs, was $9.4 million and $8.9 million for the three months ended March 31, 2024 and 2023, respectively.
2021 Credit Agreement
On November 10, 2021, the Company entered into a credit agreement (the “2021 Credit Agreement”), which provides for a term loan facility (the “2021 Term Loan”) in an aggregate principal amount of $435.0 million, and a revolving credit facility (the “2021 Revolving Credit Facility”) in an aggregate principal amount of $50.0 million, inclusive of a $10.0 million letter of credit sub-facility. The Company used the proceeds from the 2021 Term Loan to pay all outstanding amounts due under the Company’s previous 2018 First Lien plus certain fees and expenses. The 2021 Term Loan and 2021 Revolving Credit Facility mature on November 10, 2028, and November 10, 2026, respectively. The Company has not drawn on the 2021 Revolving Credit Facility as of March 31, 2024.
During the second quarter of 2023, the Company entered into a conforming changes amendment to the 2021 Credit Agreement that established the Secure Overnight Financing Rate (“SOFR”) as the benchmark rate used in the definition of the Eurocurrency Rate for its 2021 Term Loan and 2021 Revolving Credit Facility. Under the terms of the conforming changes amendment, SOFR will be used as the benchmark rate for interest periods beginning on or after June 30, 2023. In connection with the amendment, the Company incurred $0.1 million of financing fees that was expensed during the three months ended June 30, 2023.
The obligations under the 2021 Credit Agreement are secured by a lien on substantially all tangible and intangible property of the Company, subject to customary exceptions, limitations, and exclusions from the collateral.
16

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
The 2021 Credit Agreement contains customary affirmative covenants, negative covenants and events of default, including covenants and restrictions that, among other things, require the Company to satisfy a financial covenant, and restricts or limits the ability of the Company to grant or incur liens, incur additional indebtedness, enter into joint ventures or partnerships, engage in mergers and acquisitions, engage in asset sales, and declare dividends on its capital stock, subject in each case to certain customary exceptions. A failure to comply with covenants could permit the lenders to declare the 2021 Term Loan, and any then outstanding borrowings on the 2021 Revolving Credit Facility, together with accrued interest and fees thereon, to be immediately due and payable. The Company was in compliance with all financial covenants of the 2021 Credit Agreement at March 31, 2024.
2021 Term Loan
Borrowings under the 2021 Term Loan bear interest at a variable rate, elected by the Company, equal to the Base Rate (as defined in the 2021 Credit Agreement) or the Eurocurrency Rate (as defined in the 2021 Credit Agreement), plus, an initial margin based on the Company’s Consolidated First Lien Net Leverage Ratio (as defined by the 2021 Credit Agreement), which was 3.00% at March 31, 2024. Beginning in June 2022, the Company is required to make quarterly principal payments equal to 0.25% of the original principal, with the remainder due at maturity.
Debt issuance costs of $7.6 million were included as a reduction of the debt balance on the condensed consolidated balance sheets and are amortized into interest expense over the contractual life of the loans using the effective interest method. Included in the debt issuance costs were $4.8 million incurred in connection with the 2021 Term Loan, and $2.8 million carried forward from the Company’s previous 2018 First Lien. The Company recognized $0.2 million and $0.2 million, of amortization of debt issuance costs for the 2021 Term Loan during the three months ended March 31, 2024 and 2023, respectively. The effective interest rate on the 2021 Term Loan was 8.9% as of March 31, 2024.
2021 Revolving Credit Facility
Borrowings under the 2021 Revolving Credit Facility bear interest, at the election of the Company, at a rate equal to the Base Rate (as defined in the 2021 Credit Agreement) or the Eurocurrency Rate (as defined in the 2021 Credit Agreement), plus, in each case, the Applicable Rate (as defined in the 2021 Credit Agreement), which shall vary based on the Company’s Consolidated First Lien Net Leverage Ratio.
In connection with the 2021 Revolving Credit Facility, the Company incurred $0.5 million in debt issuance costs. Expenses associated with the issuance of the revolving credit facility are presented in the accompanying condensed consolidated balance sheets in prepaid expenses and other current assets and other assets, and are amortized to interest expense over the life of the 2021 Revolving Credit Facility using the straight-line method. The remaining unamortized debt issuance costs were $0.3 million and $0.3 million as of March 31, 2024, and December 31, 2023, respectively.
The 2021 Revolving Credit Facility also requires a quarterly commitment fee based on the Company’s consolidated first lien net leverage ratio. As of March 31, 2024, the applicable rate was 0.5%, which was applied against the $50.0 million unused revolving credit facility balance.
Future Principal Payments
Future principal payments of debt as of March 31, 2024, were as follows (in thousands):
Years ending December 31,
2024 (remaining nine months)$3,262 
20254,350 
20264,350 
20274,350 
2028409,988 
Total$426,300 
17

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Note 7 - Stockholders’ Equity
Stock Repurchase Programs
In May 2022, the Company’s board of directors authorized a stock repurchase program to acquire up to $75.0 million of the Company’s common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares (the “2022 Stock Repurchase Program”). In January 2024, the Company’s board of directors authorized a stock repurchase program to acquire up to $125.0 million of the Company’s common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares (the “2024 Stock Repurchase Program”).
The manner, timing, and actual number of shares repurchased under the programs will depend on a variety of factors, including price, working capital needs, general business and market conditions, regulatory requirements, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934. The repurchase programs may be commenced, suspended, or terminated at any time by the Company at its discretion without prior notice.
Approximately $44.4 million (including excise taxes) of the 2024 Stock Repurchase Program was used for the stock repurchase in connection with the Secondary Offering (defined below).
For both the 2022 Stock Repurchase Program and 2024 Stock Repurchase Program, the Company retires the repurchased shares, which automatically return to the status of authorized but unissued shares of common stock. The cost of the repurchased shares, including commissions, fees, and excise taxes are recorded as an adjustment to accumulated deficit on the Company’s condensed consolidated balance sheets and statements of stockholders’ equity.
Secondary Offering by Selling Stockholders and Related Common Stock Repurchase
On February 9, 2024, the Company completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of its existing stockholders, at an offering price of $19.00 per share (the “Secondary Offering”). The selling stockholders also granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions. The underwriters did not exercise their option to purchase any additional shares before the expiration of the 30-day window. The Company did not receive any proceeds from the sale of its common stock by the selling stockholders in the Secondary Offering. During the three months ended March 31, 2024, the Company incurred costs of $1.4 million in connection with the Secondary Offering. These costs are included within general and administrative expenses on the Company’s condensed consolidated statements of operations.
The Secondary Offering was made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276336), which was filed with the Securities and Exchange Commission on December 29, 2023 and became effective on January 8, 2024.
On February 9, 2024, in connection with the Secondary Offering and pursuant to the 2024 Repurchase Program, the Company purchased 2,406,015 shares of its common stock from the underwriters at a price per share equal to $18.2875, which is equal to the per share price at which the underwriters purchased the shares from the selling stockholders in the Secondary Offering, resulting in an aggregate purchase price of approximately $44.4 million (including excise taxes).
Stock Repurchase Activity
A summary of repurchased share activity during the three months ended March 31, 2024 and 2023, is as follows (in thousands except share data):
Three Months Ended March 31,
20242023
Total number of shares repurchased2,406,015 228,529 
Total cost of shares repurchased, including commissions, fees, and excise taxes$44,377 $3,499 
18

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
As of March 31, 2024, there was a total of $91.1 million remaining for repurchase under the Company’s stock repurchase programs.
Note 8 – Share-based Compensation
2021 Stock Option and Incentive Plan
The 2021 Stock Option and Incentive Plan (the “2021 Plan”) was adopted by the board of directors and approved by the Company’s stockholders following the corporate conversion effected in connection with the Company’s initial public offering and became effective as of July 26, 2021. The 2021 Plan replaced both the Company’s 2019 Equity Option Plan (the “2019 Plan”) and the Project Angel Parent, LLC Equity Plan (the “2018 Plan”). Outstanding options to purchase Class B Units granted under the 2019 Plan were converted into options to purchase shares of common stock, and all outstanding Carried Equity Units granted under the 2018 Plan were converted into restricted stock awards (“RSAs”), both of which have been granted under the 2021 Plan.
The Company had initially reserved 13,171,588 shares of its common stock for the issuance of awards under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase on January 1, 2022, and each January 1 thereafter, by 5% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. The number of shares reserved under the 2021 Plan is subject to adjustment in the event of a stock split, stock dividend, or other change in the Company’s capitalization.
The 2021 Plan provides flexibility to the Company’s compensation committee to use various equity-based incentive awards as compensation tools to motivate the Company’s workforce. The incentive awards that may be granted under the 2021 Plan include, but are not limited to, options to purchase common stock, stock appreciation rights, restricted shares of common stock, restricted stock units, and cash bonuses.
Stock Options
A summary of stock option activity during the three months ended March 31, 2024, is as follows (in thousands, except options, price per option, and term amounts):
Number of OptionsWeighted Average Exercise Price
Weighted Average Remaining Contract Term (in years)
Aggregate Intrinsic Value
Outstanding – January 1, 2024
3,976,372 $12.53 
6.68
$49,670 
Granted
  
Exercised(26,856)7.12 
Forfeited(18,964)22.19 
Outstanding – March 31, 2024
3,930,552 $12.52 
6.39
$30,230 
Vested and expected to vest in the future at March 31, 2024
3,930,552 12.52 
6.39
30,230 
Exercisable at March 31, 2024
3,189,348 $10.62 
6.05
$29,546 
The total fair value of options that vested during the three months ended March 31, 2024 and 2023 was $1.2 million and $1.1 million, respectively.
The total intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $0.4 million and $0.9 million, respectively.
The Company recognized $1.3 million and $1.3 million in share-based compensation expense related to time-based and performance-based stock options for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, performance-based options were probable of vesting and, therefore, were included as part of share-based compensation expense.
19

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
As of March 31, 2024, there was $7.9 million of unrecognized share-based compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 1.7 years.
Restricted Stock Units
A summary of restricted stock unit (“RSU”) activity during the three months ended March 31, 2024, is as follows:
Number of RSUsWeighted Average Grant Date Fair Value
Non-vested – January 1, 2024
4,919,744 $17.19 
Granted
85,949 19.01 
Vested(261,847)17.86 
Forfeited(174,781)17.18 
Non-vested – March 31, 2024
4,569,065 $17.18 
Each RSU represents the right to receive one share of the Company’s common stock upon vesting and settlement. As of March 31, 2024, 4,569,065 RSUs are expected to vest. The Company recognized $6.4 million and $3.4 million in share-based compensation expense related to RSUs for the three months ended March 31, 2024 and 2023, respectively.
As of March 31, 2024, there was $62.1 million of unrecognized share-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 2.65 years.
Employee Stock Purchase Program
As of March 31, 2024, the Company has issued 0 shares of common stock pursuant to the 2021 Employee Stock Purchase Plan under its employee stock purchase program (“ESPP”). As of March 31, 2024, there was $0.1 million of unrecognized share-based compensation related to the ESPP that is expected to be recognized over the remaining term of the current offering period. The Company recognized $0.2 million and $0.1 million of share-based compensation expense related to the ESPP for both the three months ended March 31, 2024 and 2023, respectively.
Share-Based Compensation
Share-based compensation for share-based awards granted to participants has been recorded in the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 as follows (in thousands):
Three Months Ended March 31,
20242023
Cost of revenues$782 $853 
General and administrative4,393 2,264 
Research and development (1)
1,502 1,783 
Sales and marketing1,259 290 
Restructuring related costs (2)
(133)(299)
Total share-based compensation expense $7,803 $4,891 
______________
(1)Net of $0.1 million additions to capitalized software on the Company’s condensed consolidated balance sheets during both the three months ended March 31, 2024 and 2023, respectively.
(2)Relates to unvested stock compensation that was forfeited as part of the 2024 Realignment Plan and 2023 Restructuring Plan. See Note 12, “Restructuring.”
20

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Note 9 – Income Taxes
In accordance with applicable accounting guidance, the Company is required to use an estimated annual effective tax rate to compute its tax provision during an interim period. However, there is an exception to the use of this method when a reliable estimate of its ordinary income (loss) or related tax (benefit) for the year cannot be determined. In that case, an entity may report the actual tax or benefit applicable when annual income cannot be estimated, as a discrete item in the interim period. This exception was used in determining the tax provision for the three months ended March 31, 2024.
Using the discrete method for the current year, and the annual effective tax rate method for the prior year, the Company’s provision for income taxes reflected an effective tax rate of (0.6)% and 17.5% for the three months ended March 31, 2024 and 2023, respectively.
During the three months ended March 31, 2024, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to research and development credits, state income taxes, permanent unfavorable differences related to share-based compensation expense, certain employee remuneration under section 162(m) of the Internal Revenue Code, and other expected permanent differences; primarily offset by a change in the valuation allowance. During the three months ended March 31, 2023, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to R&D credits, state taxes, permanent unfavorable differences related to share-based compensation expense, certain employee remuneration under section 162(m) of the Internal Revenue Code, and other expected permanent differences.
The Company regularly assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” realization standard. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the past and current trend in volatility in the Company’s business operating environment, which has impacted the Company’s current ability and expectation to generate sufficient future taxable income to fully realize its deferred tax assets, the Company continues to maintain that it is more likely that it would not be able to utilize all of the deferred tax assets as of March 31, 2024 and December 31, 2023, and, therefore, has a partial valuation allowance against its deferred tax assets. The Company’s valuation allowance was $31.3 million and $29.4 million as of March 31, 2024 and December 31, 2023, respectively. During the three months ended March 31, 2024, the Company increased its valuation allowance on deferred tax assets by $1.9 million. Adjustments to the valuation allowance are recorded as an adjustment to provision for (benefit from) income taxes on the Company’s condensed consolidated statements of operations.
The Company has gross unrecognized tax benefits with respect to research and development credits of $3.7 million as of March 31, 2024, and $3.5 million as of December 31, 2023. We have recorded an immaterial amount of penalties and interest to income tax expense as the credits have started to be utilized in certain jurisdictions, however almost all credits have no penalties or interest recorded as the credits have not yet been fully utilized.
Note 10 – Related Party Transactions
In the course of its business operations, transactions are conducted with parties with which the Company has a close association that may be deemed to be related party transactions.
The following table presents the impact of related party transactions on the Company’s consolidated statements of operations (in thousands):
Three Months Ended March 31,
20242023
Cost of revenues$364 $319 
General and administrative166 248 
Research and development25 162 
Total related party expenses$555 $729 
21

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
The following table presents the impact of related party transactions on the Company’s condensed consolidated balance sheets (in thousands):
As of March 31,
As of December 31,
20242023
Prepaid expenses and other current assets
$269 $38 
Total current assets$269 $38 
Accounts payable$225 $110 
Accrued liabilities146 243 
Total current liabilities$371 $353 
Under the terms of these related-party transactions, all amounts incurred and recognized are expected to be settled within one year from the date of the accompanying consolidated balance sheets.
Note 11 – Net Loss Per Share
The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data):
Three Months Ended March 31,
20242023
Basic and diluted net loss per share
Numerator:
Net loss attributable to common stockholders
$(5,306)$(5,666)
Denominator:
Weighted average common stock outstanding:
Basic77,335,07280,659,978
Diluted77,335,07280,659,978
Net loss per share:
Basic$(0.07)$(0.07)
Diluted$(0.07)$(0.07)
A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is as follows:
Three Months Ended March 31,
20242023
Weighted average shares outstanding for basic loss per share
77,335,07280,659,978
Effect of dilutive securities:
Options outstanding, unexercised
RSAs unvested
RSUs unvested
Purchase rights committed under the ESPP
Weighted average shares outstanding for diluted loss per share77,335,072 80,659,978 
22

MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to common stockholders because their impact would have been anti-dilutive for the periods presented:
Three Months Ended March 31,
20242023
Options to purchase common stock outstanding, unexercised3,930,552 2,017,496 
Restricted stock units, unvested4,569,065 600,981 
Purchase rights committed under the ESPP18,293  
Total8,517,910 2,618,477 
Note 12 – Restructuring Activities
2024 Realignment Plan
In January 2024, the Company’s board of directors authorized an organizational realignment plan (the “2024 Realignment Plan”) that is designed to manage operating costs, enable efficient delivery on business objectives, and allow for growth in areas of strategic importance. The 2024 Realignment Plan included a reduction of the Company’s current workforce by approximately 9%.
The Company estimated that it would incur charges of approximately $3.3 million to $4.3 million in connection with the 2024 Realignment Plan, consisting primarily of cash expenditures and relating to employee severance payments, employee benefits, and employee transition costs. Restructuring charges of $3.2 million for severance and related costs, net of $0.1 million previously vested share-based compensation, was recognized during the three months ended March 31, 2024, and are reflected in restructuring related costs on the Company’s condensed consolidated statements of operations. Accrued severance and related costs as of March 31, 2024 were $0.2 million. The Company expects to complete the 2024 Realignment Plan during the second quarter of 2024.
A rollforward of the Company’s restructuring reserve balance for the three months ended March 31, 2024 is as follows (in thousands):
As of March 31,
2024
Beginning balance$ 
Restructuring related costs3,191 
Payments(3,014)
Ending balance$177 
2023 Restructuring Plan
In February 2023, the Company’s board of directors authorized a restructuring plan (the “2023 Restructuring Plan”) that was designed to consolidate the Company’s functions and investments to prioritize customer-centric areas of the Company’s organization, align teams with the Company’s highest business priorities, and improve efficiencies. The Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 11%. Restructuring charges of $2.9 million, consisting primarily of cash expenditures and relating to severance payments, employee, benefits, and employee transition costs, net of $0.3 million previously vested share-based compensation, were recognized during the three months ended March 31, 2023. Accrued severance and related costs as of March 31, 2023, were $0.6 million. These costs are reflected in restructuring related costs on the Company’s consolidated statements of operations. The Company completed the 2023 Restructuring Plan in the second quarter of 2023.
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MERIDIANLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)
Note 13 – Subsequent Events
Equity Grants
Pursuant to approval by the Company’s compensation committee and board of directors, in April 2024, the Company awarded $61.4 million of service-based RSUs to its employees under the 2021 Plan. Service-based RSUs generally vest over four years.
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Special Note about Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2023, or our 2023 Annual Report on Form 10-K,, and our other filings with the Securities and Exchange Commission, or SEC. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our expectations regarding our revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, revenue mix, and ability to achieve and maintain future profitability;
our ability to execute on our strategies, plans, objectives, and goals;
our ability to compete with existing and new competitors in existing and new markets and offerings;
our ability to develop and protect our brand;
our ability to effectively manage privacy and information and data security;
the concentration of our customer base in the financial institution industry, and spending by financial institutions on cloud-based technology;
anticipated trends and growth rates in our business and in the markets in which we operate;
our ability to maintain and expand our customer base and our partner network;
our ability to sell our applications and expand internationally;
our ability to comply with laws and regulations;
our ability to anticipate market needs and successfully develop new and enhanced solutions to meet those needs;
the impact of global financial, economic, public health, and political events on our industry, business, and results of operations;
our ability to successfully identify, acquire, and integrate complementary businesses and technologies, and our expectations regarding the expected impact of such acquisitions on our business;
our ability to hire and retain necessary qualified employees to grow our business and expand our operations;
our ability to maintain effective internal control over financial reporting and disclosure controls and procedures, including our ability to remediate the identified material weakness in our internal control over financial reporting;
our stock repurchase programs, including the execution and amount of repurchases and financing sources for any such repurchases;
the execution of restructuring plans, including expected or contemplated associated timing, benefits, and costs;
the evolution of technology affecting our applications, platform, and markets;
economic and industry trends, including the impact of rising inflation rates on our customers and consumers generally;
seasonal fluctuations in consumer borrowing trends and impact of changes in interest rates;
our ability to adequately protect our intellectual property; and
our ability to service our debt obligations.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on

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our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
In this Quarterly Report on Form 10-Q, the terms “MeridianLink,” “we,” “us,” and “our” refer to MeridianLink, Inc. and its subsidiaries, unless the context indicates otherwise.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our 2023 Annual Report on Form 10-K. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Our fiscal year ends on December 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period.
Overview
We are a leading provider of secure, cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and credit reporting agencies, or CRAs. Financial institutions are undergoing digital transformation as they seek to transition business models, create new revenue streams, and increase customer engagement. We support our customers’ digital transformations by helping them create a superior consumer experience with our mission-critical loan origination system, or LOS, digital lending platform, data verification solutions, and data analytics. Our solutions allow our customers to meet their clients’ financial needs across the institution, which enables improved client acquisition and retention. Additionally, our solutions allow our customers to operate more efficiently by enabling automated loan decisioning and enhanced risk management.
The effective delivery and management of secure and advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel, and expertise. We provide digital solutions that are designed to be highly configurable, scalable, and adaptable to the specific needs of our customers. We design and develop our solutions with an open platform approach intended to provide comprehensive integration among our solution offerings and our customers’ internal systems and third-party systems. Our multi-product platform, MeridianLink One, can be tailored to meet the needs of our customers as they digitally transform their organizations and adapt to changing business and consumer demands. Moreover, our expert consultants offer strategic guidance and customized solutions through our modular platform to help our customers more quickly reduce costs and increase revenue, efficiency, and satisfaction of their clients.
Our solutions are central to the financial institution’s technology ecosystem and help drive additional business volume for our customers both directly and indirectly through our Partner Marketplace. Our omni-channel borrowing experience seamlessly integrates all the touch points a borrower may have with the financial institution (remote via the web or an app, in person at a branch, or telephonically through an operator). In addition to our streamlined workflow, which has been refined over twenty years with input from across our customer base, our Partner Marketplace provides our customers optional integrations, the collective capabilities of which we believe further distinguish our solution from that of competitors.
We deliver our solutions to the substantial majority of our customers using a software-as-a-service, or SaaS, model under which our customers pay subscription fees for the use of our solutions as well as fees for transactions processed using our solutions. Our subscription fees consist of revenues from software solutions that are governed by pricing and terms contained in contracts between us and our customers. The initial term of our contracts is typically three years, but may range from one to seven years. Our customer contracts are typically not cancellable without penalty. Our contracts almost always contain an evergreen auto-renewal term that is often for a one-year extension after the initial term, but can extend the auto-renewal of the contract up to the length of the original term. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the product, fees per search or per loan application or per closed loan (with contractual minimums based on volume) that are charged on a monthly basis, which we refer to as volume-based fees. We earn additional revenues based on the volume of applications or closed loans processed above our customers’ contractual minimums.
As a result of this pricing approach, our revenues from our customers grow as our customers add additional transaction types, purchase more modules, utilize more of our partner integrations, or see increased transaction volume. We generally sell our solutions through our direct sales organization or channel partners and recognize our subscription fee revenues over the terms of the customer agreements.

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Our revenues per customer vary from period to period based on the length and timing of customer implementations, sales of additional solutions to existing customers, changes in the number of transactions processed (including impacts from seasonality and cyclicality), and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing.
We seek to strengthen and grow our customer relationships by providing consistent, high-quality implementations and customer support services, which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We have migrated our solutions onto the public cloud, which helps to extend our innovation and security posture. We believe that our increased focus on our go-to-market strategy and strategic partnerships will drive incremental opportunities for revenue and accelerate customer cross-sell growth.
In addition, we believe there is untapped market potential in the loan origination and digital banking markets. We believe significant opportunity for additional customer acquisition and revenue growth exists as financial institutions continue to adopt online lending and account opening practices and require more efficient technologies. We provide these services to institutions of all sizes and complexities, but currently focus on the middle market. By focusing on better sales execution, providing and allocating resources where needed, and improving marketing efforts, we are confident in our ability to expand our customer base within our current target market.
We cater largely to financial institutions such as community banks and credit unions with assets under management between $100 million and $10 billion. For these institutions, lending is often the single most important revenue driver with approximately 70% of revenue for the full-year 2023 attributable to lending activities, according to the Federal Deposit Insurance Corporation as of April 3, 2024. In recent years, community banks have continued to compete with their typically larger non-community bank competitors. A large opportunity exists in expanding our target market to new customers with less than $100 million or greater than $10 billion in assets under management. In our down-market, smaller institutions commonly use spreadsheets or other inexpensive alternatives. These companies have a smaller volume of loans per month, but there is opportunity to right size our solutions to offer competitive pricing and functionality in order to expand into this market.
We have a build, buy, or partner capital allocation strategy for delivering value to customers and stockholders. For more than two decades, we have continuously invested in expanding and improving our solutions to expand our portfolio capabilities and reach into the consumer lending markets. For example, we designed a patented debt optimization engine to deepen the integration of our data verification and LOS solutions to empower loan officers to maximize loan acceptance rates, boost cross-sell opportunities, and deepen their relationships with clients.
In addition to developing our solutions organically, we may selectively pursue acquisitions, joint ventures, or other strategic transactions that provide additional capabilities or customers, or both. Acquisitions to date have included CRIF Lending Solutions, or CRIF, in June 2018, our closest competitor in consumer lending at the time. In November 2020, we acquired Teledata Communications, Inc., or TCI, the creator of DecisionLender, an industry-trusted LOS that improved our indirect lending capabilities. In December 2020, we acquired all of the assets of TazWorks, LLC, or TazWorks. TazWorks provides software and data solutions to CRAs focused on the employment and tenant screening market, a market that is adjacent and complementary to our current solutions for credit-focused CRAs. In April 2021, we acquired Saylent, a data analytics and marketing solution that enabled us to more rapidly bring to market our MeridianLink Engage product. In April 2022, we acquired StreetShares, Inc., or StreetShares, a financial technology company that enhances our MeridianLink Business capabilities. In November 2022, we acquired Beanstalk Networks LLC, doing business as OpenClose, or OpenClose, a leader in mortgage lending technology, with a particular focus on supporting depository institutions. This transaction has improved our platform by providing more customer-friendly capabilities, particularly through our Point of Sale solution, MeridianLink Mortgage Access, and has helped solidify our position in the depository market.
We have designed our Partner Marketplace to act as the gateway for third parties to access our customers, which allows our customers to leverage the capabilities from these third parties to enable an accelerated loan process with improved efficiency and reduced cost. We are able to capitalize on one-time service fees from our partners upon their integration into our Partner Marketplace and a revenue share from our partners as they derive revenues from our software solutions. As we grow our business, we expect to add additional product partners and drive additional monetization opportunities. We also intend to cultivate and leverage existing and future partners to grow our market presence.

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We believe that delivery of consistent, high-quality implementations and customer support services is a significant driver of purchasing and renewal decisions of our prospects and customers. To develop and maintain a reputation for high-quality service, we seek to build deep relationships with our customers through our customer support organization, which we staff with personnel who are motivated by our common mission of using technology to help our customers succeed and who are knowledgeable with respect to the regulated and complex nature of the financial services industry. As we grow and scale our business, we intend to continue to invest in and grow our internal services and support organization, as well as partner with high quality third-party organizations, to support our customers’ needs and maintain our reputation.
Global Considerations
Economic Uncertainty, Rising Inflation, and Increasing Interest Rates
We are also closely monitoring the recent volatility in capital markets and the increased economic uncertainty in the United States. These developments have led to higher inflation and increased uncertainty about business continuity. Additionally, interest rates, including for mortgages and consumer lending, have risen from historic lows and may increase further in the future. These factors may adversely affect our business and our results of operations. As our customers react to global economic conditions and the potential for a global recession, we may see reduced spending on our products and, therefore, may take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity.
Inflation rates, particularly in the United States, have increased recently to multi-year highs. Increased inflation may result in decreased demand for mortgages and consumer lending, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may cause us to experience lower than expected volumes if there is a decrease in customer spending.
As economic conditions continue to change quickly and are subject to rapid and possibly material change, we will continue to actively monitor these factors and may take actions that alter our business operations as we may determine are in the best interests of our customers and stockholders.
Recent Developments
Organizational Realignment Plan
In January 2024, our board of directors authorized an organizational realignment plan (the “2024 Realignment Plan”) that is designed to manage operating costs, enable efficient delivery on business objectives, and allow for growth in areas of strategic importance. The 2024 Realignment Plan includes a reduction of the Company’s current workforce by approximately 9%.
We estimate that we will incur charges of approximately $3.3 million to $4.3 million in connection with the 2024 Realignment Plan, consisting primarily of cash expenditures and relating to employee severance payments, employee benefits, and employee transition costs. Restructuring charges of $3.2 million for severance and related costs, net of $0.1 million previously vested share-based compensation, were recognized during the three months ended March 31, 2024, and are reflected in restructuring related costs on the Company’s condensed consolidated statements of operations. Accrued severance and related costs as of March 31, 2024 were $0.2 million. We expect to complete the 2024 Realignment Plan during the second quarter of 2024.

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January 2024 Stock Repurchase Program
In January 2024, our board of directors authorized a new stock repurchase program to acquire up to $125.0 million of our common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares, or the 2024 Stock Repurchase Program. The manner, timing, and actual number of shares repurchased under the program will depend on a variety of factors, including price, working capital needs, general business and market conditions, regulatory requirements, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. The repurchase programs may be commenced, suspended, or terminated at any time by us at our discretion without prior notice. Any shares of common stock repurchased under the 2024 Stock Repurchase Program will be retired and automatically returned to the status of authorized but unissued shares of common stock. Approximately $44.4 million (including excise taxes) of the 2024 Stock Repurchase Program was used for the stock repurchase in connection with the Secondary Offering, as described below.
Secondary Offering by Selling Stockholders and Related Common Stock Repurchase
On February 9, 2024, we completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of our existing stockholders, at an offering price of $19.00 per share, or the “Secondary Offering”. In connection with the Secondary Offering, selling stockholders granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions. The underwriters did not exercise their option to purchase any additional shares before the expiration of this 30-day window. We did not receive any proceeds from the sale of our common stock by the selling stockholders in the Secondary Offering. During the three months ended March 31, 2024, we incurred costs of $1.4 million in connection with the Secondary Offering. These costs are included within general and administrative expenses on our condensed consolidated statements of operations.
The Secondary Offering was made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276336), which was filed with the Securities and Exchange Commission on December 29, 2023, and became effective on January 8, 2024.
On February 9, 2024, in connection with the Secondary Offering and pursuant to our 2024 Stock Repurchase Program, we repurchased 2,406,015 shares of our common stock from the underwriters at a price per share equal to $18.2875, which is equal to the per share price at which the underwriters purchased the shares from the selling stockholders in the Secondary Offering, resulting in an aggregate purchase price of approximately $44.4 million (including excise taxes).
Components of Operating Results
We have one primary business activity and operate in a single operating and reportable segment.
Revenues
Our revenues consist of three components: subscription fees, professional services, and other revenues.
Subscription Fee Revenues
Our software solutions are generally available for use as hosted application arrangements under subscription fee agreements. Our software solutions consist of an obligation for us to provide continuous access to a technology solution that it hosts and routine customer support, both of which we account for as a stand-ready performance obligation. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date our solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. For the majority of our customers, additional fees for monthly usage are recognized as revenue in the month when the usage amounts are determined and reported. Certain of our subscription contracts are invoiced to our customers annually, and revenue is recognized ratably over the service term.

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In determining whether SaaS services are distinct, we have considered whether the series guidance applies to our subscription services. We have considered various factors including that substantially all our SaaS arrangements involve the transfer of a service to the customer, which represents a performance obligation that is satisfied over time because the customer simultaneously receives and consumes the benefits of the services provided. Customer support services, forms maintenance, and subscription services are considered a series of distinct services that are accounted for as a single performance obligation, as the nature of the services are substantially the same and have the same pattern of transfer (i.e., distinct days of service). For these contracts, we allocate the ratable portion of the consideration to each period based on the services provided in such period.
We have concluded that our subscription fees related to monthly usage relate specifically to the transfer of the service to the customer in that month and are consistent with the allocation objective of ASC 606 when considering all the performance obligations and payment terms in the contract. Therefore, we generally recognize additional usage revenues in the month when the usage amounts are determined and reported. This allocation reflects the amount we expect to receive for the services for the given period.
We have a limited number of legacy customers that host and manage their solutions on-premises under term license and maintenance agreements. We no longer market or sell our solutions under this type of arrangement and these legacy customers represents an immaterial amount of our subscription fee revenues. However, there is no planned sunset or end of life for these on-premises solutions.
Professional Services Revenues
We offer implementation, configuration, consulting, and training services for our software solutions and SaaS offerings. Revenues from our professional services are recognized as control is transferred to the customer, which can be either at a point in time or over time, depending on the nature of the contractual performance obligations.
In determining whether implementation services are distinct from subscription services, we have considered that there is not a significant level of integration between implementation and subscription services. Further, implementation services in our contracts provide benefit to the customer with other readily available resources and the implementation services generally are not interdependent with the SaaS subscription services. Therefore, implementation services are generally accounted for as a separate performance obligation, as they represent distinct services that provide benefit to the customer apart from SaaS services.
Consulting and training services are generally considered a separate performance obligation as they are considered distinct services that provide a benefit to the customer on their own.
Other Revenues
We enter into referral and marketing agreements with various third parties, in which revenues are primarily generated from transactions initiated by the third parties’ customers. We may introduce our customers to a referral partner or offer additional services available from the referral partner via an integration with our software solutions. Revenues are recognized in the period the services are performed, provided that collection of the related receivable is probable.
Cost of Revenues
Cost of revenues consists primarily of salaries and other personnel-related costs, including employee benefits, bonuses, and share-based compensation for employees providing services to our customers. This includes the costs of our implementation, customer support, data center, and customer training personnel. Additional expenses include fees paid to third-party vendors in connection with delivering services to customers.
Cost of revenues also includes cloud-based hosting services, an allocation of general overhead costs, and the amortization of developed technology. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation.
We capitalize certain software development costs related to programmers, software engineers, and quality control teams working on our software solutions. We commence amortization of capitalized costs for solutions that have reached general release. Capitalized software development costs are amortized to cost of revenues over their estimated economic lives.

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We intend to continue to increase our investments in our implementation and customer support teams and technology infrastructure to serve our customers and support our growth. We expect cost of revenues to continue to grow in absolute dollars as we grow our business.
Gross Profit
Gross profit is revenues less cost of revenues. Gross profit has been, and will continue to be, affected by various factors, including the mix of our subscription fees, professional service and other revenues, the costs associated with our personnel, third-party vendors, and cloud-based hosting services, and the extent to which we expand our implementation and customer support services. We expect that our gross profit will fluctuate from period to period depending on the interplay of these various factors.
Operating Expenses
General and Administrative
General and administrative expenses consist primarily of salaries, and other personnel-related costs, including employee benefits, bonuses, and share-based compensation, of our administrative, finance and accounting, information systems, legal, and human resources employees. General and administrative expenses also include consulting and professional fees, insurance, franchise taxes, travel, and credit loss expense.
General and administrative expenses include depreciation of property and equipment and amortization of acquired intangible assets. Identifiable intangible assets with finite lives, such as customer relationships, trademarks, and non-competition agreements, are amortized over their estimated useful lives on either a straight-line or accelerated basis, depending on the nature of the intangible asset.
We continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a public company. These expenses include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of investor relations activities, and investments to drive scalability. As a result, we expect our general and administrative expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as we scale the business and continue to adjust to being a public reporting company.
Research and Development
Research and development expenses include salaries and other personnel-related costs, including employee benefits, bonuses, and share-based compensation. Research and development expenses also include third-party contractor expenses, software development costs, allocated overhead, and other related expenses incurred in developing new solutions and enhancing existing solutions.
Certain research and development costs that are related to our internal software development, which include salaries and other personnel-related costs attributed to certain programmers, software engineers, and quality control teams, are capitalized and are included in intangible assets, net on the condensed consolidated balance sheets.
We believe that continuing to improve and enhance our solutions is essential to maintaining our reputation for innovation and growing our customer base and revenues. We plan to continue investing in research and development by increasing our software development capacity. As a result, we expect our research and development expenses to increase in absolute dollars, over the long term as we scale the business, including through integration of our acquisitions.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and other personnel-related costs, including commissions, employee benefits, bonuses, and share-based compensation. Sales and marketing expenses also include expenses related to advertising, lead generation, promotional event programs, corporate communications, travel, outside consulting fees, and allocated overhead. Commissions related to software sales are generally capitalized and then amortized over the expected period of customer benefit.

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Sales and marketing expenses are also impacted by the timing of significant marketing programs such as our annual customer conference, which we typically hold during the second quarter. We plan to continue investing in sales and marketing by increasing our number of sales and marketing personnel and expanding our sales and marketing activities. As a result, we expect our sales and marketing expenses to increase in absolute dollars. We believe these investments will help us build brand awareness, add new customers, and expand sales to our existing customers as they continue to buy more solutions from us.
Total Other (Income) Expense, Net
Total other (income) expense, net consists primarily of interest expense attributable to our credit facilities and amortization of lender-related fees and other direct incremental costs of securing financing partially offset by interest income from our interest-bearing cash accounts.
Provision For (Benefit From) Income Taxes
The Company’s income tax expense includes the changes for the deferred tax asset valuation allowance, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to federal income taxes in the United States and numerous state jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense.
We recognize deferred tax assets to the extent that these assets are more likely than not to be realized. If they are not, deferred tax assets are reduced by a valuation allowance. We assess whether a valuation allowance should be recorded against our deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” realization standard. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the past and current trend in volatility in our business operating environment which has impacted our current ability and expectation to generate sufficient future taxable income to fully realize our deferred tax assets, we have determined that it is more likely that we would not be able to utilize all of our deferred tax assets, and therefore, we have established a partial valuation allowance on our deferred tax assets as of March 31, 2024 and December 31, 2023. Our valuation allowance was $31.3 million and $29.4 million at March 31, 2024, and December 31, 2023, respectively.
We have recorded uncertain tax position related to certain research and development tax credits utilized in certain tax jurisdictions, due to the partial utilization of these credits in these tax jurisdictions. This tax position has been recorded primarily as a reduction to the related deferred assets associated with these credits. To date, penalties and interest associated with this position have been immaterial.

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Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we use certain “non-GAAP financial measures” to clarify and enhance our understanding of past performance and future prospects. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor adjusted EBITDA, the non-GAAP financial measure described below, and we believe it is helpful to investors for the reasons listed below.
Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, amortization and depreciation, interest expense, and share-based compensation expense, which are excluded from adjusted EBITDA have been and we expect will continue to be significant recurring expenses in our business for the foreseeable future. Income tax expense is also excluded from adjusted EBITDA and can be volatile due to temporary and permanent differences between GAAP and IRS statutory regulations, and changes resulting from recording valuation allowances due to identified impairments in our deferred tax assets. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.
Adjusted EBITDA
We define adjusted EBITDA as net loss before interest expense, taxes, depreciation and amortization, share-based compensation expense, employer payroll taxes on employee stock transactions, expenses associated with our initial public offering and secondary offering, restructuring related costs, sponsor and third-party acquisition related costs, loss on debt repayment, lease termination charges and deferred revenue reductions from purchase accounting for acquisitions prior to the adoption of ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which we early adopted on January 1, 2022, on a prospective basis. Deferred revenue from acquisitions prior to the adoption of ASU 2021-08 was recognized on a straight-line basis through December 31, 2023. We have provided below a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results for the following reasons:
adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;
our management uses adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance;
adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations, and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and
our investor and analyst presentations include adjusted EBITDA as a supplemental measure of our overall operating performance.
Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of adjusted EBITDA as an analytical tool has limitations such as:
depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and adjusted EBITDA does not reflect cash requirements for such replacements;

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adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;
excludes the impact of the write-down of deferred revenues due to purchase accounting in connection with our acquisitions, and therefore includes revenues that will never be recognized under GAAP;
adjusted EBITDA does not reflect the potentially dilutive impact of share-based compensation;
adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
adjusted EBITDA does not reflect tax payments that could reduce cash available for use; and
other companies, including companies in our industry, might calculate adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.
The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods presented (in thousands):
Three Months Ended March 31,
20242023
Net loss$(5,306)$(5,666)
Interest expense9,5829,031
Provision for (benefit from) income taxes32(1,199)
Depreciation and amortization
14,52414,531
Share-based compensation expense7,9365,190
Employer payroll taxes on employee stock transactions422126
Expenses associated with public offering1,389
Restructuring related costs3,1912,904
Deferred revenue reduction from purchase accounting for acquisitions prior to 202220
Adjusted EBITDA$31,770$24,937

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Results of Operations
Condensed Consolidated Statements of Operations
The following table sets forth our condensed consolidated statements of operations data for each of the periods indicated (in thousands, except for share and per share amounts):
Three Months Ended March 31,
20242023
Revenues, net$77,816 $77,135 
Cost of revenues:
Subscription and services (1)
21,344 23,501 
Amortization of developed technology4,729 4,454 
Total cost of revenues26,073 27,955 
Gross profit51,743 49,180 
Operating expenses:
General and administrative (1)
25,179 22,555 
Research and development (1)
9,485 13,812 
Sales and marketing (1)
10,536 8,213 
Restructuring related costs (1)
3,191 2,904 
Total operating expenses48,391 47,484 
Operating income3,352 1,696 
Other (income) expense, net:
Interest and other income(956)(470)
Interest expense9,582 9,031 
Total other expense, net8,626 8,561 
Loss before income taxes(5,274)(6,865)
Provision for (benefit from) income taxes32 (1,199)
Net loss(5,306)(5,666)
Net loss per share:
Basic$(0.07)$(0.07)
Diluted$(0.07)$(0.07)
Weighted average common stock outstanding:
Basic77,335,072 80,659,978 
Diluted77,335,072 80,659,978 
______________
(1)Share-based compensation is as follows:
Three Months Ended March 31,
20242023
Cost of revenues$782 $853 
General and administrative4,393 2,264 
Research and development, net of amounts capitalized1,502 1,783 
Sales and marketing1,259 290 
Forfeitures included in restructuring related costs(133)(299)
Total share-based compensation expense$7,803 $4,891 


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Comparison of the Three Months Ended March 31, 2024 and 2023
Revenues, net
Three Months Ended March 31,Change
(in thousands)20242023$%
Revenues, net$77,816 $77,135 $681 %
Revenues increased $0.7 million, or 1% for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was primarily due to the net effect of increased revenue from our Lending Software Solutions, which is driven by increases from new and ramping customers as well as existing customers, partially offset by decreased revenue from our Data Verification Services, which is driven by lower volumes in our mortgage-related revenues. For both of our solutions, we receive incremental revenues if customers exceed their minimum commitments for monthly transactions, which typically is based off of number of applications or closed and funded loans for Lending Software Solutions and credit, tenant, or employment verification reports for our Data Verification Software Solutions.
Cost of Revenues and Gross Profit
Subscription and services
Three Months Ended March 31,Change
(in thousands)20242023$%
Subscription and services$21,344 $23,501 $(2,157)(9)%
Subscription and services cost of revenues decreased $2.2 million, or (9)%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease was primarily due to the combined effect of $1.1 million decrease in third-party costs driven by lower Data Verification Software Solutions application volumes, which, in turn, were driven by lower volumes in our mortgage-related revenues; and lower compensation costs of $0.6 million, primarily related to lower employee headcount due to the 2023 Restructuring Plan that was completed in the second quarter of 2023.
Amortization of Developed Technology
Three Months Ended March 31,Change
(in thousands)20242023$%
Amortization of Developed Technology$4,729 $4,454 $275 %
Amortization of developed technology increased $0.3 million, or 6%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was due to increased amortization for internally developed software as we continue to build and enhance our product offerings.
Gross Profit
Three Months Ended March 31,Change
(in thousands)20242023$%
Gross profit$51,743 $49,180 $2,563 %
Gross profit increased $2.6 million, or 5%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was primarily due to the net increase in revenue resulting from increased Lending Software Solutions revenue and a decrease in third-party costs driven by lower Data Verification Software Solutions application volumes.

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Operating Expenses
General and Administrative
Three Months Ended March 31,Change
(in thousands)20242023$%
General and administrative$25,179 $22,555 $2,624 12 %
General and administrative expenses increased $2.6 million, or 12%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was primarily related to the net effect of increased share-based compensation expenses of $2.1 million related to increased amortization expenses from stock options and restricted stock units in 2024 compared to the same period in 2023; and increased fees of $1.4 million related to our Secondary Offering, with none in the comparable prior period in 2023; partially offset by reductions in third party consulting and recruiting expenses amounting to $0.5 million.
Research and Development
Three Months Ended March 31,Change
(in thousands)20242023$%
Research and development$9,485 $13,812 $(4,327)(31)%
Research and development expenses decreased $4.3 million, or 31%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease was primarily related to decreased compensation expenses of $2.9 million, net of amounts capitalized, and lower stock compensation expense of $0.3 million, largely from lower headcount and personnel costs on our research and development teams during the three months ended March 31, 2024 compared to the same period in 2023 due to the 2024 Realignment Plan that went into effect during the three months ended March 31, 2024; and $0.6 million lower from retention bonuses in 2023 related to the acquisitions of StreetShares and OpenClose, with none in the comparable period in 2024.
Sales and Marketing
Three Months Ended March 31,     Change
(in thousands)20242023$%
Sales and marketing$10,536 $8,213 $2,323 28 %
Sales and marketing expenses increased $2.3 million, or 28%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was primarily related to increased personnel related expenses of $2.3 million from increased headcount on our sales and marketing teams, which included increased commissions expenses of $0.7 million, net of amounts capitalized; and increased share-based compensation expenses of $1.0 million due to increased amortization in 2024 compared to the same period in 2023.
Restructuring Related Costs
Three Months Ended March 31,Change
(in thousands)20242023$%
Restructuring related costs$3,191 $2,904 $287 10 %
Restructuring related costs are costs related to the 2024 Realignment Plan that went into effect during the three months ended March 31, 2024, and the 2023 Restructuring Plan that went into effect during the same period in 2023. Restructuring related costs incurred during both periods are primarily related to cash payments for severance, net of non-cash stock compensation forfeitures, and other termination-related costs.

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Total Other Expense, net
Three Months Ended March 31,Change
(in thousands)20242023$%
Total other expense, net$8,626 $8,561 $65 %
Total other expenses, net had a net increase of $0.1 million, or 1%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was primarily due to the net effect from higher interest expense due to rising rates on our variable rate term loan during the three months ended March 31, 2024, partially offset by increased interest income related to the Company’s money market mutual fund.
Provision for (Benefit from) Income Taxes
Three Months Ended March 31,Change
(in thousands)20242023$%
Provision for (benefit from) income taxes$32 $(1,199)$1,231 (103)%
Provision for income taxes was $0.0 million for the three months ended March 31, 2024, compared to a benefit from income taxes of $1.2 million for the three months ended March 31, 2023. The decrease was primarily due to the tax provision (benefit) effects of research and development credits, state income taxes, permanent unfavorable differences related to share-based compensation expense, certain employee remuneration under section 162(m) of the Internal Revenue Code, and other expected permanent differences; primarily offset by a change in the valuation allowance.
Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations primarily through cash flows from operations, long-term debt, and proceeds from equity issuances. We have also filed a shelf registration statement on Form S-3, or the Shelf Registration Statement, that became effective January 8, 2024, under which we may offer or sell, in one or more offerings, our common stock, preferred stock, warrants, debt securities, and/or units consisting of some or all of these securities in a maximum aggregate amount of up to $500.0 million.
As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents of $62.3 million and unused capacity under our revolving line of credit of $50.0 million. Based upon our current levels of operations, we believe that our cash flows from operations along with our other sources of liquidity are adequate to meet our cash requirements for at least the next twelve months.
Our primary uses of cash are funding operations, acquisitions, capital expenditures, debt principal and interest payments, and stock repurchases. Our use of cash is impacted by the timing and extent of the required payments for each of these activities.
Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the introduction of new and enhanced solutions, the seasonality impacts on our business, the timing and extent of spending to support our growth strategy, the continued market acceptance of our solutions, the future acquisitions of solutions or businesses, and future stock repurchases. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. We continue to monitor our financing requirements and may pursue refinancing opportunities to potentially reduce interest rates and extend maturities. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.
Operating Leases
We lease office space and server equipment under various operating lease agreements that expire through December 2026. We recognize the related rent expense on a straight-line basis over the term of each lease. Free rent and rental increases are recognized on a straight-line basis over the term of each lease.

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Debt
For a detailed description of our debt, please see Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Three Months Ended March 31,Change
(in thousands)20242023$%
Net cash provided by (used in):
Operating activities$29,038 $28,081 $957 %
Investing activities(1,929)(2,058)129 %
Financing activities(45,265)(4,007)(41,258)(1,030)%
Net (decrease) increase in cash, cash equivalents
$(18,156)$22,016 $(40,172)(182)%
Cash Flows from Operating Activities
Our largest source of operating cash is cash collection from sales of subscription fees to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, marketing expenses, payments to third-party vendors, and interest expense.
Operating cash flow is derived by adjusting our net loss for non-cash operating items, such as depreciation and amortization, amortization of debt issuance costs, share-based compensation expense, deferred income taxes, loss on disposal of property and equipment, and changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.
The decrease in cash provided by operating activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to decreases in net loss of $4.0 million after adjusting for non-cash operating items, $3.5 million related to timing of customer billings, and $0.7 million related to timing of prepayments, partially offset by decreases related to timing of disbursements for operations of $7.2 million.
Cash Flows from Investing Activities
The decrease in cash used in investing activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due to lower purchases of property and equipment and lower capitalized software additions of $0.1 million.
Cash Flows from Financing Activities
The increase in cash used in financing activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to higher stock repurchases of $40.5 million, higher taxes paid for net share settlements of restricted stock units of $0.3 million, and lower proceeds from exercise of stock options of $0.4 million.
Recent Accounting Pronouncements
See Note 2, “Significant Accounting Policies” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial condition, and cash flows.

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Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial results may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates since December 31, 2023. For a full discussion of these estimates and policies, see “Critical Accounting Policies and Significant Judgments” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in our exposures to market risk since December 31, 2023. For a full discussion of our exposures to market risks, see “Quantitative and Qualitative Disclosures about Market Risk” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.