MeridianLink, Inc. [MLNK] Filings

10-Q 1 mlnk-20230630.htm 10-Q mlnk-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


o			TRANSITION 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)

______________________________


Delaware						82-4844620
(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)

(714) 708-6950

(Registrant’s Telephone Number, Including Area Code)

______________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	MLNK	The 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 filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 July 26, 2023, there were 81,408,314 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

MeridianLink, Inc.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022	4

	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2023 and 2022	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	69

Item 6.	Exhibits	70

	Signatures	71

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. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)


	As of
	June 30, 2023		December 31, 2022

Assets
Current assets:
Cash and cash equivalents	$	108,872	$	55,780

Accounts receivable, net	35,104		32,905
Prepaid expenses and other current assets	11,313		9,447
Escrow deposit	—		30,000
Total current assets	155,289		128,132
Property and equipment, net	3,491		4,245
Right of use assets	1,671		2,185
Intangible assets, net	274,208		297,475
Deferred tax assets, net	17,886		13,939
Goodwill	608,576		608,657
Other assets	5,003		4,524
Total assets	$	1,066,124	$	1,059,157

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,149	$	1,249
Accrued liabilities	30,783		32,500
Deferred revenue	26,302		16,945
Current portion of long-term debt, net of debt issuance costs	3,545		3,505
Total current liabilities	64,779		54,199
Long-term debt, net of debt issuance costs	421,808		423,404
Long-term deferred revenue	841		1,141
Other long-term liabilities	845		1,322
Total liabilities	488,273		480,066
Commitments and contingencies (Note 5)
Stockholders’ Equity
Preferred stock, $0.001 par value; 50,000,000 shares authorized; zero shares issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value; 600,000,000 shares authorized, 81,167,660 and 80,644,452 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	132		128
Additional paid-in capital	636,193		621,396
Accumulated deficit	(58,474)		(42,433)
Total stockholders’ equity	577,851		579,091
Total liabilities and stockholders’ equity	$	1,066,124	$	1,059,157

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

(in thousands, except share and per share data)


	Three Months Ended June 30,			Six Months Ended June 30,
		2023		2022		2023		2022
Revenues, net		$	75,415	$	72,987	$	152,550	$	145,741
Cost of revenues:
Subscription and services		23,984		23,376		47,485		44,480
Amortization of developed technology		4,510		3,850		8,964		7,284
Total cost of revenues		28,494		27,226		56,449		51,764
Gross profit		46,921		45,761		96,101		93,977
Operating expenses:
General and administrative		24,409		20,806		46,964		38,993
Research and development		11,754		10,487		25,566		18,896
Sales and marketing		8,558		5,465		16,771		10,208


Acquisition related costs		—		103		—		2,386
Restructuring related costs		717		—		3,621		—
Total operating expenses		45,438		36,861		92,922		70,483
Operating income		1,483		8,900		3,179		23,494
Other (income) expense, net:
Other income		(784)		(216)		(1,254)		(379)
Interest expense, net		9,316		5,436		18,347		9,794

Total other expense, net		8,532		5,220		17,093		9,415
(Loss) income before (benefit from) provision for income taxes		(7,049)		3,680		(13,914)		14,079

(Benefit from) provision for income taxes		(1,819)		1,508		(3,018)		4,428
Net (loss) income		$	(5,230)	$	2,172	$	(10,896)	$	9,651




Net (loss) income per share:
Basic		$	(0.06)	$	0.03	$	(0.13)	$	0.12
Diluted		$	(0.06)	0.03		$	(0.13)	$	0.12
Weighted average common stock outstanding:
Basic		80,911,113		80,418,520		80,786,427		80,197,832
Diluted		80,911,113		82,223,181		80,786,427		82,251,322

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)

(in thousands, except share data)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	80,644,452	$	128	$	621,396	$	(42,433)	$	579,091
Vesting of restricted stock awards	59,558	4		—		—		4
Vesting of restricted stock units	65,770	—		—		—		—
Issuance of common stock due to exercise of stock options	97,412	—		594		—		594

Shares withheld related to net share settlement of restricted stock units	(1,769)	—		(24)		—		(24)
Repurchases of common stock	(228,529)	—		—		(3,499)		(3,499)
Share-based compensation expense	—	—		4,939		—		4,939
Net loss	—	—		—		(5,666)		(5,666)
Balance at March 31, 2023	80,636,894	$	132	$	626,905	$	(51,598)	$	575,439
Vesting of restricted stock awards	3,497	—		—		—		—
Vesting of restricted stock units	575,623	—		—		—		—
Issuance of common stock due to exercise of stock options	51,105	—		431		—		431
Issuance of common stock through employee stock purchase plan	61,759	—		793		—		793
Shares withheld related to net share settlement of restricted stock units	(53,240)	—		(1,026)		—		(1,026)
Repurchases of common stock	(107,978)	—		—		(1,646)		(1,646)
Share-based compensation expense	—	—		9,090		—		9,090
Net loss	—	—		—		(5,230)		(5,230)
Balance at June 30, 2023	81,167,660	$	132	$	636,193	$	(58,474)	$	577,851

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)

(in thousands, except share data)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	79,734,984	$	88	$	596,542	$	(40,352)	$	556,278
Vesting of restricted stock awards	484,401	32		—		—		32
Vesting of restricted stock units	76,937	—		—		—		—
Issuance of common stock due to exercise of stock options	28,909	—		179		—		179
Share-based compensation expense	—	—		3,887		—		3,887
Net income	—	—		—		7,479		7,479
Balance at March 31, 2022	80,325,231	$	120	$	600,608	$	(32,873)	$	567,855
Vesting of restricted stock awards	92,209	6		—		—		6
Vesting of RSUs	4,656	—		—		—		—
Issuance of common stock due to exercise of stock options	1,000	—		7		—		7
Issuance of common stock through employee stock purchase plan	64,985	—		922		—		922
Repurchases of common stock	(12,300)	—		—		(193)		(193)
Share-based compensation expense	—	—		5,548		—		5,548
Net income	—	—		—		2,172		2,172
Balance at June 30, 2022	80,475,781	$	126	$	607,085	$	(30,894)	$	576,317

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(10,896)	$	9,651
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	28,955		26,376
Provision for expected credit losses	441		—
Amortization of debt issuance costs	669		1,429
Share-based compensation expense	13,893		9,247
Loss on disposal of fixed assets	—		135





Deferred income taxes	(4,192)		4,025
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(2,640)		(8,806)
Prepaid expenses and other assets	(2,395)		661
Accounts payable	2,955		(1,059)
Accrued liabilities	(1,663)		(2,065)
Deferred revenue	9,058		8,076

Net cash provided by operating activities	34,185		47,670
Cash flows from investing activities:

Acquisition, net of cash acquired – Beanstalk Networks L.L.C.	326		—
Acquisition, net of cash and restricted cash acquired – StreetShares, Inc.	—		(23,059)



Return (payment) of escrow deposit	30,000		(30,000)
Capitalized software additions	(4,562)		(4,079)
Purchases of property and equipment	(305)		(480)
Net cash provided by (used in) investing activities	25,459		(57,618)
Cash flows from financing activities:
Repurchases of common stock	(5,145)		(193)



Proceeds from exercise of stock options	1,025		186

Proceeds from employee stock purchase plan	793		922
Taxes paid related to net share settlement of RSUs	(1,050)		—

Principal payments of long-term debt	(2,175)		(1,088)
Payment of Regulation A+ investor note	—		(3,265)







Net cash used in financing activities	(6,552)		(3,438)
Net increase (decrease) in cash and cash equivalents	53,092		(13,386)
Cash and cash equivalents, beginning of period	55,780		113,645
Cash and cash equivalents, end of period	$	108,872	$	100,259


Supplemental disclosures of cash flow information:
Cash paid for interest	$	17,955	$	8,337
Cash paid for income taxes	2,577		762
Non-cash investing and financing activities:


Share-based compensation expense capitalized to software additions	136		188
Purchase price allocation adjustment related to income tax effects for StreetShares acquisition	245		—
Vesting of RSAs and RSUs	5		38
Purchases of property and equipment included in accounts payable and accrued expenses	3		93
Regulation A+ investor note assumed in business combination	—		3,265
Initial recognition of operating lease liability	—		3,372
Initial recognition of operating lease right-of-use asset	—		2,627

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Table of Contents

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. Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or the consolidated balance sheets.

The interim condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and stockholders’ equity for the three and six months ended June 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 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 June 30, 2023, its condensed consolidated results of operations for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022. The financial data and the other financial information disclosed in the notes to the condensed consolidated financial statements related to the three and six months ended June 30, 2023 and 2022 and as of June 30, 2023, are also unaudited. The condensed consolidated balance sheet as of December 31, 2022, included herein, and financial information disclosed in the notes to the condensed consolidated financial statements as of December 31, 2022 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, 2022, filed on March 9, 2023 (“2022 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.

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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. Significant items subject to such estimates include revenue recognition including determining the nature and timing of satisfaction of performance obligations and variable consideration; allowance for credit losses; share-based compensation; 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. 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 2022 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies described in the Company’s 2022 Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes, except for updates resulting from the adoption of ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” which is discussed in more detail within Note 3, “Revenue Recognition.”

Accounting Pronouncements Recently 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 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”

Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company adopted this guidance effective January 1, 2023, and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

Recent Accounting Pronouncements Not Yet Adopted

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

ASU 2020-04 provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates, such as the London Inter-Bank Offered Rate (LIBOR), which regulators in the United Kingdom are currently phasing out. The expedients and exceptions provided by ASU 2020-04 are for the application of U.S. GAAP to contracts, hedging relationships, and other transactions affected by the rate reform. Companies can apply the ASU immediately, however, the guidance will only be available for a limited time. In December 2022, the FASB issued ASU 2022-06 which deferred the sunset date from December 31, 2022, to December 31, 2024, after which companies will no longer be permitted to apply the transition relief. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements and related disclosures.

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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 June 30,			Six Months Ended June 30,
		2023		2022		2023		2022
Lending Software Solutions		$	55,778	$	51,668	$	113,779	$	100,835
Data Verification Software Solutions		19,637		21,319		38,771		44,906
Total		$	75,415	$	72,987	$	152,550	$	145,741

Lending Software Solutions accounted for 74%, and 71% of total revenues for the three months ended June 30, 2023 and 2022, respectively. Data Verification Software Solutions accounted for 26% and 29% of total revenues for the three months ended June 30, 2023 and 2022, respectively.

Lending Software Solutions accounted for 75%, and 69% of total revenues for the six months ended June 30, 2023 and 2022, respectively. Data Verification Software Solutions accounted for 25% and 31% of total revenues for the six months ended June 30, 2023 and 2022, respectively.

Revenue is measured based on the consideration that the Company expects to receive pursuant to a contract with a customer or partner. Under the standard terms and conditions of the Company's contracts with its customers or partners, contractual transaction price is generally not adjusted due to measurement adjustments associated with estimated variable consideration. Variable consideration exists when the amount that the Company expects to receive in a contract is based on the occurrence or non-occurrence of future events, such as processing services performed under usage-based pricing arrangements or professional services billed on a time-and-materials basis. Variable consideration can also be present in certain transactions in the form of discounts, credits, price concessions, penalties, and similar items. The Company estimates variable consideration in its contracts primarily using the expected value method. The Company develops estimates of variable consideration on the basis of both historical information and current trends. Variable consideration included in the transaction price of a contract is constrained such that a significant revenue reversal is not probable.

During the three months ended June 30, 2023, the Company updated its estimate of variable consideration associated with one of the Company’s channel reseller contracts acquired through a past acquisition, which resulted in a $2.3 million reduction in Lending Software Solutions revenue for the current period. Due to a commercial dispute with this reseller in the current period, the amount the Company expects to receive under this contract was reduced, as receipt of this amount was no longer considered to be probable, which led to the reduction in revenue.

The following table disaggregates the Company’s net revenues by major source (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
		2023		2022		2023		2022
Subscription fees		$	63,770	$	63,529	$	130,175	$	126,998
Professional services		9,002		6,665		17,437		13,777
Other		2,643		2,793		4,938		4,966
Total revenues		$	75,415	$	72,987	$	152,550	$	145,741

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Deferred Revenue

The changes in the Company’s deferred revenue as of June 30, 2023 and 2022 were as follows (in thousands):


	Six Months Ended June 30,
	2023		2022
Deferred revenue, beginning balance	$	18,086	$	14,707
Billing of transaction consideration	161,607		154,671
Revenue recognized	(152,550)		(145,741)
Deferred revenue, ending balance	$	27,143	$	23,637
Deferred revenue, current	$	26,302	$	23,259
Long-term deferred revenue	841		378
Total deferred revenue	$	27,143	$	23,637

Assets Recognized from Costs to Obtain a Contract with a Customer

The following table represents the changes in contract cost assets (in thousands):


	Six Months Ended June 30,
	2023		2022
Beginning balance	$	6,539	$	5,835
Additions	2,291		1,326
Amortization	(1,559)		(1,185)
Ending balance	$	7,271	$	5,976
Contract cost assets, current	$	3,471	$	2,704
Contract cost assets, noncurrent	3,800		3,272
Total deferred contract cost assets	$	7,271	$	5,976

Accounts Receivable and Allowance for Credit Losses

Effective January 1, 2023, the Company adopted the requirements of ASU 2016-13-Credit Losses, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) using a modified retrospective method of adoption. The standard replaces the existing incurred credit loss model with the current expected credit losses model for financial instruments, including accounts receivable.

The Company’s accounts receivable includes billed and unbilled receivables, net of an allowance for credit losses. Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The Company recognizes an allowance for credit losses on accounts receivable in an amount equal to the current expected credit losses. The estimation of the allowance is based on an analysis of historical loss experience, current receivables aging, and management’s assessment of current conditions and estimated future conditions, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

The Company assesses collectability by pooling receivables where similar characteristics exist and evaluates receivables individually when specific customer balances no longer share those risk characteristics and are considered at risk or uncollectible. The expense associated with the allowance for expected credit losses is recognized in general and administrative expenses.

A rollforward of the Company’s allowance for expected credit losses balance for the six months ended June 30, 2023, is as follows (in thousands):

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)


	Six Months Ended June 30, 2023
Allowance for doubtful accounts, December 31, 2022	$	165
Impact of adopting ASU 2016-13	—
Allowance for expected credit losses, January 1, 2023	165


Provision for expected credit losses	441
Write offs, net	(179)
Allowance for expected credit losses, June 30, 2023	$	427

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 June 30, 2023		As of December 31, 2022
Prepaid expenses	$	6,491	$	6,069
Contract cost assets – current	3,471		2,938


Other	1,351		440
Total prepaid expenses and other current assets	$	11,313	$	9,447

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	As of June 30, 2023		As of December 31, 2022
Computer equipment and software	$	8,083	$	7,854
Leasehold improvements	2,732		2,732
Office equipment and furniture	986		978

Total	11,801		11,564
Less: Accumulated depreciation	(8,310)		(7,319)
Property and equipment, net	$	3,491	$	4,245

Depreciation expense amounted to $0.5 million and $0.6 million for the three months ended June 30, 2023 and 2022, respectively, and $1.0 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively.

The Company disposed of office furniture that resulted in a loss of $0.1 million during the six months ended June 30, 2022. The losses are included in general and administrative expenses on the accompanying condensed consolidated statements of operations. There were no disposals of property and equipment for the three and six months ended June 30, 2023, and the three months ended June 30, 2022.

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Intangible Assets, Net

Intangible assets, net consisted of the following (in thousands):


	As of June 30, 2023
	Gross Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	343,300	$	(149,392)	$	193,908
Developed technology	96,400		(46,427)		49,973
Trademarks	24,975		(11,547)		13,428
Non-competition agreements	5,500		(1,253)		4,247
Capitalized software	24,141		(11,489)		12,652
Total intangible assets, net	$	494,316	$	(220,108)	$	274,208


	As of December 31, 2022
	Gross Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	343,300	$	(132,298)	$	211,002
Developed technology	96,400		(40,360)		56,040
Trademarks	24,975		(10,205)		14,770
Non-competition agreements	5,500		(688)		4,812
Capitalized software	19,443		(8,592)		10,851
Total intangible assets, net	$	489,618	$	(192,143)	$	297,475

The weighted average remaining useful lives for intangible assets at June 30, 2023, were as follows:


			Weighted Average Remaining Useful Life
Customer relationships			6 years
Developed technology			7 years
Trademarks			6 years
Non-competition agreements			4 years
Capitalized software			3 years

Amortization expense related to intangible assets was as follows (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
		2023		2022		2023		2022
Cost of revenues		$	4,510	$	3,850	$	8,964	$	7,284
General and administrative expense		9,419		9,042		19,001		17,951
Total amortization expense		$	13,929	$	12,892	$	27,965	$	25,235

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

The estimated future amortization of intangible assets as of June 30, 2023, was as follows (in thousands):


Years ending December 31,
2023 (remaining six months)	$	27,702
2024	54,324
2025	48,443
2026	42,920
2027	42,052
Thereafter	58,767
Total amortization expense	$	274,208

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	As of June 30, 2023		As of December 31, 2022
Accrued payroll and payroll-related expenses	$	10,070	$	9,836
Accrued bonuses	5,149		5,947
Sales tax liability from acquisitions	4,572		4,572
Accrued operating costs	3,870		4,016
Accrued costs of revenues	3,354		3,141
Lease liability – current	1,213		1,223

User conference	—		755
Other accrued expenses	2,555		3,010
Total accrued liabilities	$	30,783	$	32,500

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. 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.

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 June 30, 2023, are as follows (in thousands):


	Contractual Commitments
Years ending December 31,

2023 (remaining six months)	$	—
2024	3,315
2025	988


Total	$	4,303

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Note 6 – Long-Term Debt

Long-term debt consisted of the following (in thousands):


	As of June 30, 2023		As of December 31, 2022
2021 Term loan	$	429,563	$	431,738
Debt issuance costs	(4,210)		(4,829)
Total debt, net	425,353		426,909
Less: Current portion of long-term debt
2021 Term loan	4,350		4,350
Debt issuance costs	(805)		(845)
Total current portion of long-term debt, net	3,545		3,505
Total non-current portion of long-term debt, net	$	421,808	$	423,404

Amortization of deferred financing fees was $0.4 million and $0.9 million for the three months ended June 30, 2023 and 2022, respectively. Total interest expense, excluding amortization of deferred financing fees, was $8.9 million and $4.5 million for the three months ended June 30, 2023 and 2022, respectively.

Amortization of deferred financing fees was $0.7 million and $1.4 million for the six months ended June 30, 2023 and 2022, respectively. Total interest expense, excluding amortization of deferred financing fees, was $17.8 million and $8.4 million, for the six months ended June 30, 2023 and 2022, 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 June 30, 2023.

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.

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 certain 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 June 30, 2023.

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

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 June 30, 2023. 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 $0.4 million and $0.9 million of amortization of debt issuance costs for the 2021 Term Loan during the three months ended June 30, 2023 and 2022, respectively. The Company recognized $0.6 million and $1.4 million of amortization of debt issuance costs for the 2021 Term Loan during the six months ended June 30, 2023 and 2022, respectively. The effective interest rate on the 2021 Term Loan was 9.0% as of June 30, 2023.

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 2021 Revolving Credit Facility also requires a quarterly commitment fee based on the Company’s consolidated first lien net leverage ratio. As of June 30, 2023, 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 long-term debt as of June 30, 2023, were as follows (in thousands):


Years ending December 31,
2023 (remaining six months)	$	2,175
2024	4,350
2025	4,350
2026	4,350
2027	4,350
Thereafter	409,988
Total	$	429,563

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Note 7 - Stockholders’ Equity

Stock Repurchase Program

In May 2022, the Company’s board of directors authorized a new stock repurchase program to acquire up to $75.0 million of the Company’s common stock, with no requirement to purchase any minimum number of shares. 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 Securities Exchange Act of 1934. The repurchase program may be commenced, suspended, or terminated at any time by the Company at its discretion without prior notice.

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 retained earnings on the Company’s condensed consolidated balance sheets and statements of stockholders’ equity.

A summary of repurchased share activity during the three and six months ended June 30, 2023 and 2022, is as follows (in thousands except share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Total number of shares repurchased	107,978		12,300		336,507		12,300
Total cost of shares repurchased, including commissions, fees, and excise taxes	$	1,646	$	193	$	5,145	$	193

As of June 30, 2023, there was a total of $66.5 million remaining for repurchase under the stock repurchase program.

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 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.

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Stock Options

A summary of stock option activity during the six months ended June 30, 2023, is as follows (in thousands, except options, price per option, and term amounts):


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value




Outstanding – January 1, 2023	4,739,783	$	13.21	7.61	$	19,855
Granted	—	—
Exercised	(148,517)	6.90
Forfeited	(283,114)	21.91
Outstanding – June 30, 2023	4,308,152	$	12.86	6.96	$	39,195
Vested and expected to vest in the future at June 30, 2023	4,308,152	12.86		6.96	39,195
Exercisable at June 30, 2023	3,109,048	$	9.84	6.38	$	36,401

The total fair value of options that vested during the three months ended June 30, 2023 and 2022 was $2.6 million and $0.3 million, respectively, and for the six months ended June 30, 2023 and 2022 was $3.7 million and $1.8 million, respectively.

The total intrinsic value of options exercised during the three months ended June 30, 2023 and 2022 was $0.6 million and $0.0 million, respectively, and for the six months ended June 30, 2023 and 2022 was $1.4 million and $0.4 million, respectively.

The Company recognized $1.5 million and $1.7 million in share-based compensation expense related to time-based and performance-based stock options for the three months ended June 30, 2023 and 2022, respectively, and for the six months ended June 30, 2023 and 2022, recognized $2.8 million and $3.1 million, respectively. During the three and six months ended June 30, 2023 and 2022, performance-based options were probable of vesting and, therefore, were included as part of share-based compensation expense.

As of June 30, 2023, there was $11.7 million of unrecognized share-based compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.33 years.

Restricted Stock Awards

The number of restricted stock awards (“RSAs”) that vested during three months ended June 30, 2023 and 2022 was 3,497 and 92,209, respectively, and for the six months ended June 30, 2023 and 2022 was 63,055 and 576,610, respectively.

The liability balance as of December 31, 2022, related to the unvested RSAs was $0.00 million, and the number of RSAs amounted to 63,609. As of June 30, 2023, the Company had no unvested RSAs and no remaining liability balance.

There were a total of 554 and 4,934 RSAs cancelled or forfeited during the three months ended June 30, 2023 and 2022, respectively, and 554 and 27,146 RSAs cancelled or forfeited during the six months ended June 30, 2023 and 2022, respectively.

The Company recognized $0.0 million and $0.1 million in share-based compensation expense related to the vesting of RSAs for the three months ended June 30, 2023 and 2022, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively.

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Restricted Stock Units

A summary of restricted stock unit (“RSU”) activity during the six months ended June 30, 2023, is as follows:


	Number of RSUs	Weighted Average Grant Date Fair Value
Non-vested – January 1, 2023	3,111,831	$	19.27
Granted	3,520,122	16.22
Vested	(641,393)	19.23
Forfeited	(614,936)	18.52
Non-vested – June 30, 2023	5,375,624	$	17.36

As of June 30, 2023, 5,375,624 RSUs are expected to vest. The Company recognized $7.4 million and $3.6 million in share-based compensation expense related to RSUs for the three months ended June 30, 2023 and 2022, respectively. The Company recognized $10.8 million and $5.9 million in share-based compensation expense related to RSUs for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, there was $85.7 million of unrecognized share-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 3.26 years.

Employee Stock Purchase Program

As of June 30, 2023, the Company has issued 61,759 shares of common stock pursuant to the 2021 Employee Stock Purchase Plan under its employee stock purchase program (“ESPP”). As of June 30, 2023, there was $0.2 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 $0.2 million of share-based compensation expense related to the ESPP for the three months ended June 30, 2023 and 2022, respectively. The Company recognized $0.3 million and $0.4 million of share-based compensation expense related to the ESPP for the six months ended June 30, 2023 and 2022, 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 and six months ended June 30, 2023 and 2022 as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenues	$	1,157	$	1,251	$	2,009	$	2,215
General and administrative	5,231		2,396		7,494		3,777
Research and development (1)	1,875		1,288		3,658		2,365
Sales and marketing	1,104		504		1,395		890
Restructuring related costs (2)	(365)		—		(663)		—
Total share-based compensation expense	$	9,002	$	5,439	$	13,893	$	9,247
______________

(1)Net of $0.1 million and $0.1 million additions to capitalized software on the Company’s condensed consolidated balance sheets during the three months ended June 30, 2023 and 2022, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively.

(2)Relates to unvested stock compensation that was forfeited as part of the Restructuring Plan. See Note 12, “Restructuring.”

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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. The Company’s provision for income taxes reflected an effective tax rate of 25.8% and 41.0% for the three months ended June 30, 2023 and 2022, respectively, and 21.7% and 31.0% for the six months ended June 30, 2023 and 2022, respectively. During the three and six months ended June 30, 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, recognition of U.S. state net operating losses from prior acquisitions, and other expected permanent differences. During the three and six months ended June 30, 2022, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to R&D credits, state taxes, permanent differences related to share-based compensation expense, transaction expenses, and other expected permanent differences.

The Company has gross unrecognized tax benefits with respect to R&D credits of $3.1 million as of June 30, 2023, and $2.5 million as of December 31, 2022. Penalties and interest have been recorded on these liabilities as the credits have started to be utilized.

The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (l) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards. Based on the evaluation of the evidence and sources of taxable income, the Company has determined that no valuation allowance is necessary as of June 30, 2023.

Note 10 – Related Party Transactions

The following table presents the impact of related party transactions on the Company’s condensed consolidated statements of operations (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenues	$	446	$	602	$	766	$	1,073
General and administrative	156		229		403		436
Research and development	66		46		228		109
Sales and marketing	—		16		—		39
Total related party expenses	$	668	$	893	$	1,397	$	1,657

The following table presents the impact of related party transactions on the Company’s condensed consolidated balance sheets (in thousands):


	As of
		June 30, 2023		December 31, 2022
Prepaid assets		$	129	$	37
Total current assets		$	129	$	37




Accounts payable		$	136	$	30
Accrued liabilities		395		456
Total current liabilities		$	531	$	486

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Additionally, during the six months ended June 30, 2023, the Company engaged contractors that were related parties to perform development work for its product offerings. Amounts capitalized for internally developed software related to work performed by these related parties was $0.1 million during both the three and six months ended June 30, 2023, and none during both the three and six months ended June 30, 2022. The Company recorded no amortization of related party internally developed software during both the three and six months ended June 30, 2023. As of June 30, 2023, the net book value of related party internally developed software was $0.1 million.

Note 11 – Net (Loss) Income Per Share

The following table presents the calculation of basic and diluted net (loss) income per share (in thousands, except share and per share data):


	Three Months Ended June 30,			Six Months Ended June 30,
		2023		2022		2023		2022
Basic and diluted net (loss) income per share
Numerator:
Net (loss) income attributable to common stockholders		$	(5,230)	$	2,172	$	(10,896)	$	9,651
Denominator:
Weighted average common stock outstanding:
Basic		80,911,113		80,418,520		80,786,427		80,197,832
Diluted		80,911,113		82,223,181		80,786,427		82,251,322
Net (loss) income per share:
Basic		$	(0.06)	$	0.03	$	(0.13)	$	0.12
Diluted		(0.06)		0.03		(0.13)		0.12

A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is as follows:


	As of June 30,
		2023	2022
Weighted average shares outstanding for basic earnings per share		80,786,427	80,197,832
Effect of dilutive securities:
Options outstanding, unexercised		—	1,699,288
RSAs unvested		—	305,499
RSUs unvested		—	41,586
Purchase rights committed under the ESPP		—	7,117
Weighted average shares outstanding for diluted earnings per share		80,786,427	82,251,322

The following outstanding potentially dilutive securities were excluded from the calculation of diluted net (loss) income per share attributable to common stockholders because their impact would have been anti-dilutive for the periods presented:


	As of June 30,
	2023	2022
Options to purchase common stock outstanding, unexercised	1,967,302	1,650,378

Restricted stock units, unvested	417,964	852,445
Purchase rights committed under the ESPP	—	130
Total	2,385,266	2,502,953

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Note 12 – Restructuring Activities

Restructuring Plan

In February 2023, the Company’s board of directors authorized a restructuring plan (the “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 an initial estimated reduction of the Company’s then-current workforce by approximately 9%.

The Company initially estimated that it would incur charges of $2.5 million to $3.5 million in connection with the Restructuring Plan, consisting primarily of cash expenditures and relating to employee severance payments, employee benefits, and employee transition costs. Restructuring charges of $2.9 million for severance and related costs, net of $0.3 million previously vested share-based compensation, were recognized during the three months ended March 31, 2023, and are reflected in restructuring-related costs on the Company’s condensed consolidated statements of operations.

During the three months ended June 30, 2023, the Company completed its restructuring plan, which resulted in additional restructuring charges related to employee severance payments, employee benefits, and employee transition costs of $0.7 million, net of $0.4 million of previously vested share-based compensation. As of June 30, 2023, the Company increased its estimate of total restructuring charges to $3.6 million, and increased its estimated reduction of the Company’s workforce to approximately 11%.

Restructuring charges of $3.6 million for severance and related costs, net of $0.7 million previously vested share-based compensation, were recognized during the six months ended June 30, 2023. These charges are reflected in restructuring-related costs on the Company’s condensed consolidated statements of operations.

A rollforward of the Company’s restructuring reserve balance for the six months ended June 30, 2023, is as follows (in thousands):


	Six months ended June 30, 2023
Balance as of January 1, 2023	$	—
Restructuring related costs	3,621
Payments	(3,146)
Balance as of June 30, 2023.	$	475

Note 13 – Business Combinations

Acquisition of OpenClose

On November 4, 2022, the Company acquired all of the outstanding stock of Beanstalk Networks L.L.C., doing business as OpenClose, (“OpenClose”) for cash consideration of $63.1 million. In connection with the acquisition, the Company incurred $1.9 million in acquisition related costs. The acquisition was funded by the Company’s available cash. OpenClose is based out of West Palm Beach, Florida, and provides mortgage lending technology, with a particular focus on supporting depository institutions. The acquisition is expected to improve the Company’s existing lending platform and improve our offerings for depository institutions. The acquisition is accounted for using the acquisition method of accounting whereby the acquired assets and liabilities will be recorded at their respective fair values and added to those of the Company, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.

As of June 30, 2023, the Company is still finalizing the provisional purchase price allocation related to final working capital adjustments and income tax effects.

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MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (CONTINUED)

Pro Forma Financial Information

The pro forma statements of operations data for the three and six months ended June 30, 2022, give effect to the OpenClose acquisition, described above, as if it had occurred at January 1, 2021. These amounts have been calculated after adjusting the operating results of OpenClose for the following primary items: (1) additional intangible amortization from the transaction, (2) acquisition-related expenses incurred, and (3) the related tax effects of the above adjustments. For the three months ended June 30, 2022, pro forma revenue was $76.6 million, and pro forma earnings reflect net income of $1.7 million. For the six months ended June 30, 2022, pro forma revenue was $152.7 million, and pro forma earnings reflect net income of $8.1 million.

The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of January 1, 2021, or the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

Acquisition of StreetShares

On April 1, 2022, the Company acquired all of the outstanding stock of StreetShares, Inc. (“StreetShares”) for cash consideration of $28.0 million, $30.0 million in escrow for a contingent earnout that expired April 1, 2023, and $1.6 million in acquisition costs. The $30.0 million in escrow was considered contingent consideration and accounted for separate from the business combination accounting. The acquisition was funded by the Company’s available cash.

StreetShares is based out of Reston, VA, and is a financial technology company that provides digital small business lending technology to banks and credit unions. The acquisition is accounted for using the acquisition method of accounting whereby the acquired assets and liabilities are recorded at their respective fair values and added to those of the Company, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. Results of operations of StreetShares have been included in the operations of the Company beginning with the closing date of the acquisition.

During the three months ended June 30, 2023, the $30.0 million held in escrow as contingent earnout proceeds was not earned and was released in its entirety back to the Company. The Company recognized $30.0 million as an increase to cash on its condensed consolidated balance sheets.

During the three months ended March 31, 2023, the Company completed the provisional purchase price allocation related to income tax effects, resulting in a reduction to the deferred tax asset and corresponding increase to goodwill in the amount of $0.2 million.

Pro forma information for the StreetShares acquisition is not provided because their historical operating results were not material to the Company’s consolidated results of operations.

Goodwill Rollforward

A rollforward of the Company’s goodwill balance for the six months ended June 30, 2023, is as follows (in thousands):


	Six months ended June 30, 2023
Balance at January 1, 2023	$	608,657



Adjustments to OpenClose acquisition date fair value	(326)
Adjustments to StreetShares acquisition date fair value	245
Balance at June 30, 2023	$	608,576

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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” in our Annual Report on Form 10-K for the year ended December 31, 2022. 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 the novel coronavirus, or COVID-19, pandemic and other global financial, economic, 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;

•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 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,

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may file with the Securities and Exchange Commission, or 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 and the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 Annual Report on Form 10-K, filed with the SEC on March 9, 2023. 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. 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 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 customers.

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 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.

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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.

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 invested in migrating 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 client 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. In recent years, community banks have continued to compete with their typically larger non-community bank competitors, and the FDIC reported that, in 2019, net interest income accounted for over 78 percent of community bank net operating revenues. 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 alter our solutions to offer decreased pricing and functionality in order to lower implementation fees.

We have continuously invested in expanding and improving our solutions since they were first introduced more than two decades ago, and we intend to continue investing both organically and inorganically through acquisitions to expand our portfolio. We are focused on introducing new solutions and enhancing services and capabilities in areas including digital lending, data insights, and collections to further expand our reach into the consumer lending markets. In addition to developing our solutions organically, such as the combination of our capabilities to create our patented consumer debt optimization functionality, 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, and Teledata Communications, Inc., or TCI, in November 2020. TCI is the creator of DecisionLender, a SaaS loan origination solution. We believe that with the addition of TCI, our position as a vendor of choice is enhanced among financial institutions seeking solutions to manage their needs from initiation of client relationships to facilitating the extension of credit to their clients. 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 offers insights to financial institutions that help drive account and credit and debit card usage and 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 offers digital small business lending technology to banks and credit unions. The acquisition of StreetShares complements our existing lending platform and enhances our small business lending capabilities. In November 2022, we acquired Beanstalk Networks L.L.C., doing business as OpenClose, or OpenClose, a leader in mortgage lending technology, with a particular focus on supporting depository institutions. This transaction is expected to improve our platform by providing additional advanced, more open, and more customer-friendly capabilities, particularly through our Point of Sale solution. In addition to improving our capabilities, this transaction is expected to present benefits of increased scale and help solidify our position in the market by allowing us to target additional sales to depository institutions.

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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.

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.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has had widespread, rapidly-evolving, and unpredictable impacts on global societies, economies, financial markets, and business practices (including in California where our corporate headquarters are located). Our focus remains on promoting employee health and safety, serving our customers, complying with regulations, and ensuring business continuity. While the impacts of the COVID-19 pandemic have not caused a material adverse financial impact to our business to date, the future impacts remain uncertain. The extent to which the COVID-19 pandemic, including any variants of the virus that have emerged, may impact our business going forward will depend on numerous evolving factors that we cannot reliably predict, including factors that may adversely impact business spending on technology, and customers’ ability to pay for our products and services on an ongoing basis. See Part I, Item 1A. “Risk Factors” in our 2022 Annual Report on Form 10-K for further discussion of the impact and possible future impacts of the COVID-19 pandemic on our business.

Recent Developments

In February 2023, our board of directors authorized a restructuring plan, or the Restructuring Plan, which 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 an initial estimated reduction of our then-current workforce by approximately 9%.

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We initially estimated that we would incur charges of $2.5 million to $3.5 million in connection with the Restructuring Plan, consisting primarily of cash expenditures and relating to employee severance payments, employee benefits, and employee transition costs. Restructuring charges of $2.9 million for severance and related costs, net of $0.3 million previously vested share-based compensation, were recognized during the three months ended March 31, 2023, and are reflected in restructuring-related costs on our condensed consolidated statements of operations.

During the three months ended June 30, 2023, we completed our restructuring plan, which resulted in additional restructuring charges related to employee severance payments, employee benefits, and employee transition costs of $0.7 million, net of $0.4 million of previously vested share-based compensation. As of June 30, 2023, the Company increased its estimate of total restructuring charges to $3.6 million, and increased our estimated reduction of the Company’s workforce to approximately 11%.

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 subscription fees consist of revenues from software solutions that are governed by pricing and terms contained in contracts between us and our customers. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the solution, fees per search or per application or per closed loan (with contractual minimums based on volume) that are generally charged on a monthly basis, which we refer to as volume-based fees.

Our software solutions are primarily hosted in cloud-based hosting services and are generally available for use as hosted application arrangements under subscription fee agreements. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term generally beginning on the date our solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met. Revenue that is earned but not yet invoiced is recorded in accounts receivable. For the majority of our customers, additional fees for monthly usage above the levels included in the standard subscription fee are recognized as revenue in the month when the usage amounts are determined and reported.

Professional Services Revenues

We offer implementation, configuration, consulting, and training services for our software solutions and SaaS offerings. Revenues from professional services are recognized as control is transferred to the customer.

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 solutions. We market our partners’ solutions to our customers as a way not only to generate revenue but also to ensure that our customers are leveraging the full benefit of our solution, which includes the capabilities offered through our partners. Revenues are recognized in the period the services are performed, provided that collection of the related receivable is reasonably assured.

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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.

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 and Gross Margin

Gross profit is revenues less cost of revenues, and gross margin is gross profit as a percentage 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 margin will fluctuate from period to period depending on the interplay of these various factors. Our gross margin was 62.2% and 62.7% for the three months ended June 30, 2023 and 2022, respectively, and 63.0% and 64.5% for the six months ended June 30, 2023 and 2022, respectively.

Operating Expenses

General and Administrative

General and administrative expenses consist primarily of allowance for credit losses, 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, and travel.

General and administrative expenses include depreciation and amortization of property and equipment and amortization of acquired intangibles. 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.

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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.

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, net. Interest expense consists of interest 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.

(Benefit from) Provision for Income Taxes

Our income tax expense, 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. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is subsequently determined that deferred tax assets would be more likely than not realized in the future, in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. After a review of the four sources of taxable income (as described above), and after consideration of our continuing cumulative income position, inclusive of impact from permanent differences, as of June 30, 2023, we have not recorded a valuation allowance on its deferred tax assets.

We have recorded an uncertain tax position with respect to our R&D credits. We have recorded an immaterial amount of penalties and interest as the credits have been fully utilized in certain jurisdictions, however almost all credits have no penalties or interest recorded as the credits have not yet been fully utilized, and therefore the uncertain tax position is recorded primarily as a reduction of the deferred tax asset related to these credits.

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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:


	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands, except share and per share amounts)		2023		2022		2023		2022
Revenues, net		$	75,415	$	72,987	$	152,550	$	145,741
Cost of revenues:
Subscription and services (1)		23,984		23,376		47,485		44,480
Amortization of developed technology		4,510		3,850		8,964		7,284
Total cost of revenues		28,494		27,226		56,449		51,764
Gross profit		46,921		45,761		96,101		93,977
Operating expenses:
General and administrative (1)		24,409		20,806		46,964		38,993
Research and development (1)		11,754		10,487		25,566		18,896
Sales and marketing (1)		8,558		5,465		16,771		10,208


Acquisition related costs		—		103		—		2,386
Restructuring related costs (1)		717		—		3,621		—
Total operating expenses		45,438		36,861		92,922		70,483
Operating income		1,483		8,900		3,179		23,494
Other (income) expense, net:
Other income		(784)		(216)		(1,254)		(379)
Interest expense, net		9,316		5,436		18,347		9,794

Total other expense, net		8,532		5,220		17,093		9,415
(Loss) income before (benefit from) provision for income taxes		(7,049)		3,680		(13,914)		14,079

(Benefit from) provision for income taxes		(1,819)		1,508		(3,018)		4,428
Net (loss) income		$	(5,230)	$	2,172	$	(10,896)	$	9,651




Net (loss) income per share:
Basic		$	(0.06)	$	0.03	$	(0.13)	$	0.12
Diluted		$	(0.06)	0.03		(0.13)		0.12
Weighted average common stock outstanding:
Basic		80,911,113		80,418,520		80,786,427		80,197,832
Diluted		80,911,113		82,223,181		80,786,427		82,251,322
______________

(1)Share-based compensation is as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
		2023		2022		2023		2022
Cost of revenues		$	1,157	$	1,251	$	2,009	$	2,215
General and administrative		5,231		2,396		7,494		3,777
Research and development, net of amounts capitalized		1,875		1,288		3,658		2,365
Sales and marketing		1,104		504		1,395		890
Forfeitures included in restructuring related costs

MeridianLink, Inc. [MLNK] Filings
10-Q	[2023-08-04]
10-Q	[2023-05-02]
10-K	[2023-03-09]
10-Q	[2022-11-07]
10-Q	[2022-08-09]
10-Q	[2022-05-12]
10-K	[2022-03-10]
10-Q	[2021-11-03]
10-Q	[2021-09-07]
S-1	[2021-04-30]