EDGAR 10-K Filing

Company CIK: 1834494
Filing Year: 2025
Filename: 1834494_10-K_2025_0001834494-25-000018.json

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ITEM 1. BUSINESS
Item 1. Business
BUSINESS
Our Vision and Mission
At MeridianLink, our vision is to power life’s important financial moments and our mission is to be the most trusted financial services technology platform, enabling our customers to focus on what is truly important: their employees, clients, and communities.
Who We Are
We are an industry-trusted vertical software-as-a service, or SaaS, company, having earned our market-leading position by serving financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies, or CRAs, for more than 25 years. With our mission-critical lending, account opening, and data verification software solutions, our customers can accelerate their digital transformation to better serve their clients’ needs. By providing a more personalized, automated experience, our customers can improve client acquisition and retention while operating more efficiently.
MeridianLink empowers financial institutions to support the entire consumer lifecycle, including mortgage, and business lending portfolios. Our composable, cloud-based lending software and data verification software solutions harness the power of shared intelligence from a unified data platform, providing seamless integration for optimal efficiency throughout our customers’ organizations. Through MeridianLink One, our end-to-end, multi-product platform, financial institutions can more quickly reduce costs and capture growth opportunities, while enhancing the experience for staff and clients alike.
Our lending software solutions provide a fully digital workflow for our customers, from initial account opening applications to final extension of credit and, where necessary, collections activity. We enable our customers to offer a wide array of products and services to new and existing clients, replacing traditional manual processing and less nimble in-house solutions. Our solutions address many categories of consumer lending, including mortgage, credit card, personal, auto, home equity, and small business loans, and provide the software tools and data necessary to deliver frictionless experiences, including automated decisioning.
Our data verification software solutions help our customers make smarter business decisions by retrieving verification data for credit, income, employment, property, and fraud prevention. In addition to verifying third-party data, our software solutions represent the systems that customers use to efficiently run their businesses through order processing and billing. Specifically, Mortgage Credit Link is a versatile, stable, and powerful cloud-based fulfillment hub for consumer data verification, and TazWorks is a comprehensive background screening software solution with productivity and mobile engagement tools. To leverage the credit bureaus and other available sources, financial institutions rely on MeridianLink to optimize scoring and data management. Instead of investing in wasted development time, customers connect to a single application programming interface, or API, to access credit and verification data from dozens of resellers and service providers.
We offer our software solutions using a SaaS model under which our customers pay subscription fees for the use of our solutions and typically have multi-year contracts with an initial term of three years or more. Our customer contracts are typically not cancellable without penalty. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the solution, fees per search, per loan application, or per closed loan (with some contractual minimums based on volume) that are charged on a monthly basis, which we refer to as volume-based fees. We seek to deepen and grow our customer relationships by providing consistent, high-quality implementations and support services, which we believe drive higher retention and incremental sales opportunities within our existing base. We believe that our increased focus on our go-to-market strategy and partnerships will drive incremental opportunities for revenue and accelerate cross-sell growth.
Who We Serve
We have had the privilege of helping our middle-market customers to execute a digital lending and account opening strategy proven to accelerate growth and reduce operational costs. As of December 31, 2024, our customer mix includes approximately 2,000 diverse financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and CRAs.
History
We continue to innovate and expand our offerings and customer base through a combination of in-house development and acquisitions. For our first two decades, our expansion was driven by internal product initiatives and market development. Immediately after the investment by Thoma Bravo UGP, LLC and its affiliated entities, or Thoma Bravo, into MeridianLink in May 2018, we acquired CRIF Corporation, or CRIF, a provider of consumer lending software solutions for banks and credit unions, in June 2018. In subsequent years, we grew organically by increasing sales of our software solutions and inorganically through a series of tuck-in acquisitions that added customers, capabilities, or both to MeridianLink. For example, we expanded our lending capabilities to include indirect lending when we acquired Teledata Communications, Inc., or TCI, an industry-trusted loan origination system, or LOS, that primarily serves the indirect lending needs of banks, credit unions, and financial companies nationwide. We also expanded our data verification capabilities to include background screening when we acquired substantially all of the assets of TazWorks, LLC, or TazWorks, the creator of TazCloud, an end-to-end technology solution for the background screening industry. More recently, we acquired Beanstalk Networks LLC in November 2022, doing business as OpenClose, a leader in mortgage lending technology with a particular focus on supporting depository institutions, helping solidify our position in the depository market.
Technology and Solutions
Our software provides our customers with an end-to-end solution that improves workflow across a financial institution. Our solutions are not only focused on driving increased loan origination and partner interactions at each digital touch point, but they also help our customers simplify how loans are processed and decisioned, so that increased client volume does not materially increase costs incurred by our customers. This enhanced efficiency enabled by the improved workflow we facilitate allows our customers to improve their financial performance. Our actively marketed solutions and services include Lending Software Solutions, which enable financial institutions to better serve consumers and businesses, and Data Verification Software Solutions, which are utilized by CRAs. Our software solutions include:
•Point of Sale Systems;
•Account Opening Software;
•Consumer LOS;
•Mortgage LOS;
•Business Lending Software;
•Marketing Automation Software;
•Data Verification Software;
•Collection Software; and
•Analytics and Business Intelligence.
Lending Software Solutions
MeridianLink One
MeridianLink One is our multi-product platform that 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 configurable solutions through our modular platform so customers can more quickly reduce costs and increase revenue, efficiency, and customer satisfaction. MeridianLink One provides an all-in-one digital lending and deposit account opening platform that is powered by a smart cross-sell optimization engine. The platform spans mortgage, business lending, and consumer loan origination and offers enhanced transparency and efficiency to process loans. We designed a patented debt optimization engine to deepen the integration of our data verification and LOS solutions to empower loan officers to maximize loan acceptance rates, boost cross-sell opportunities, and deepen their relationships with clients. Additionally, the platform provides access to our large network of third-party integrations that further accelerate the loan process and reduce expenses for our customers.
MeridianLink Portal
We offer Point of Sale, or POS, systems through MeridianLink Portal and MeridianLink Access that allow financial institutions to easily expand existing lending and deposit account origination platforms to online consumers while helping to ensure control of the entire online application experience. From the ability to determine which loan and deposit account applications to make available online, to customizing the look and feel to match an existing web presence, our system has hundreds of configurations available to tailor the online application process to meet a financial institution’s business objectives. Our POS system is the consumer touch point for consumer loans that seamlessly integrates with our all-in-one consumer LOS and account opening software so that online applications can route reliably into the customer’s existing platform. In October 2023, we launched MeridianLink Access, our new POS solution that provides enhanced configurability, enabling customers to fine-tune and personalize their consumer-facing processes to the unique requirements of their institutions for both consumer and mortgage lending. MeridianLink Access joins MeridianLink Portal as our second POS solution for financial institutions.
MeridianLink Opening
We offer a comprehensive cloud-based online account opening and deposit software solution through our MeridianLink Opening product. The platform unifies deposit account opening and funding for all channels and product types. With robust functionality ranging from identity verification, OFAC checks, e-signature, switch kits, and core system connectivity, our platform saves operational costs and increases customer satisfaction from application initiation to account creation.
MeridianLink Consumer
We offer LOS software, MeridianLink Consumer, that provides a full loan solution suite to banks and credit unions. It includes automated underwriting and pricing for indirect loans (auto and retail), consumer lending (direct auto and unsecured and secured personal loans), lines of credit, business loans, home equity loans, home equity lines of credit, and vehicle leases. As a single loan origination system, our software consolidates applications from all channels, applying the same rules and processes to work to provide a streamlined process for institutional staff and a user-friendly consumer experience for customers. The solution provides a frictionless experience by consolidating data from all existing channels-mobile, online, branch, call center, indirect, retail, and kiosk-into a unified consumer experience. The modern, intuitive, and efficient user interface, or UI, makes everyday transaction processing easier. In addition, our cross-sell engine identifies potential cross-sell opportunities, such as credit card debt consolidation or auto loan refinancing, for our customers.
MeridianLink Mortgage
We offer cloud-based software designed for financial professionals to optimize the end-to-end mortgage loan origination process through our MeridianLink Mortgage product. We use automation, technology, and a dedicated support staff to help lenders deliver fast loans. This includes a complete decision engine that provides deep credit analysis, automated condition generation, and automated fee calculations - all of which increase the efficiency of the origination. Our suite of tools (including MeridianLink Mortgage Access, Open API, PriceMyLoan, eDocs, LenderAssist, DecisionAssist, and web portals) allows for individual customization while enabling regulatory compliance.
MeridianLink Business
Originally launched as the Atlas Platform by StreetShares, which we acquired in 2022, MeridianLink Business is a key component of our multi-product platform, MeridianLink One. Our business lending offering combines StreetShares and MeridianLink capabilities to optimize financial institutions’ business lending. MeridianLink Business provides certain functions specifically for business lending, including automated cash flow statement creation, business credit reports, and business risk and identity verification.
MeridianLink Collect
MeridianLink Collect is our cloud-based debt collection software that helps customers easily and efficiently manage delinquencies. The software replaces tedious workflows with automation, sophisticated analytics, and easy-to-use functionality.
Analytics and Business Intelligence
We offer a range of solutions that deliver the quality and expertise of an internal business intelligence team through agile analytics and business intelligence tools, currently offered through MeridianLink Engage, MeridianLink Consulting, MeridianLink Data Connect, and MeridianLink Insight. These tools maximize our customers’ credit portfolio performance through tailored services and help our customers to make better and faster business decisions. The solutions deliver interactive visualizations and various filter dimensions. We provide intuitive dashboards, easy-to-read reports, and a powerful exploratory sandbox, presenting a comprehensive solution for a multi-level audience while providing insights for omni-channel execution.
Data Verification Software Solutions
We offer a plug-and-play, cloud-based order fulfillment hub for bankers and credit officers, which we refer to as our Data Verification Software Solutions that encompasses our Mortgage Credit Link, TazCloud, and Credit API products. Our data verification software simplifies product ordering with an intuitive web interface and integrated tools for order fulfillment. The solution includes access to a network of consumer credit, data, and verification service providers and allows them to process credit, income verification, employment, criminal and rental history, and other related services. A comprehensive list of product and service APIs allows for integrations with applications to minimize human error and to reduce costs.
Additional Solutions
In addition to the solutions listed above, we support additional loan origination systems, credit decisioning tools, and solution modules. Several of these solutions, such as ACTion, LCC/Appro, BizMark/Mark4, Sail/Teres, and Synergy, came to us via acquisitions, and we remain committed to ensuring the best journey for these customers. Wherever possible, we seek to make available the capabilities and innovations of our new solutions to those customers on older versions of our solutions.
Financial Model and Key Metrics
Our revenues have three components: subscription fees, professional services, and other revenues. Our subscription fees consist of revenues from software solutions that are almost exclusively multi-year contracts with an initial term of three years or more. Our customer contracts are typically not cancellable without penalty. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the solution, fees per search or per loan application or per closed loan (with some contractual minimums based on volume) that are charged on a monthly basis, which we refer to as volume-based fees. Our professional service fees are driven by professional services for the implementation and configuration of platform modules for customer needs as well as certain consulting engagements regarding best practices and analytics. Our other fees consist of revenue sharing calculated based on revenue generated, applications or loans processed, or some combination thereof.
We have high customer and revenue retention due to the nature of the services we provide, which are designed to automate complex workflows and customer integrations. For example, onboarding and loan origination workflows within financial institutions are complicated with significant compliance requirements and often require integration with legacy systems that are highly customized and fragmented.
Our pricing model provides us with several monetization opportunities to receive revenues in excess of what is contractually committed by our customers. Current pricing typically requires a contractual commitment for a minimum revenue amount and allows our customer to process an allowable number of applications in that month without incurring additional fees. Customers can achieve lower per application pricing by contracting for a higher monthly revenue commitment. Customers pay on a per transaction basis if their volumes surpass their minimum commitment level. For non-mortgage consumer loans, including personal loans, auto loans, credit cards, and deposit accounts, customers pay per-application, regardless of whether the application is accepted or denied. For our mortgage loan product, customers pay per-funded loan.
We have additional opportunities to generate revenues in excess of what is contractually committed through our Partner Marketplace. Through reseller and referral relationships, we receive revenues based on our customers’ use of our partner’s services. In many instances, our partners have their own sales and marketing efforts that target our customers, and when those third-party sales efforts are successful, we generate fees. We also market our partners’ solutions to our customers as a way to generate revenues and to help to ensure that our customers are leveraging the full benefit of our solution, which includes the capabilities offered through our partners.
Sales and Marketing
Our sales team primarily consists of our new logo sales teams, which focus on selling into accounts that currently do not have a relationship with us, and our customer sales team, which sells into existing customer accounts. Our sales teams are supported by our sales engineers, who demonstrate the functionality of our solutions to prospects, and our revenue operations team which manages reporting, analytics, and sales enablement.
Our new logo teams are responsible for expanding our customer base. These teams are trained to nurture prospective customers, including through discovery of such prospects’ currently implemented solutions, if any, and by expertly demonstrating the capabilities our solutions offer and the potential benefits to the prospective customer.
Our customer sales team maintains close relationships with existing customers and acts as an advisor to each customer, helping them identify and understand their specific needs, challenges, goals, and opportunities with the intention of expanding the breadth of our solutions they use. This team also works to ensure that our existing customers get the maximum benefit from the solutions we provide.
We also have a sales team supporting our channel partners to work to ensure that our partners can capitalize on prospects that are identified through their selling efforts. The channel sales team also seeks to identify new potential channel partners that can expand the breadth of our reach to potential prospects.
To build brand awareness, thought leadership and generate qualified sales opportunities, we conduct digital marketing campaigns, webinars, public relations campaigns, lead development activities, and advertise through multiple avenues, including industry publications and conferences. In addition to such digital marketing campaigns within the marketing team, we also employ a team of business development representatives who are responsible for generating qualified sales opportunities for both the new logo and the existing customer sales teams. We have also historically hosted an in-person annual forum to foster a customer community, showcase our most recent solution enhancements, and engage in a discussion on the direction and roadmap of our solutions. The annual MeridianLink LIVE 2024 user forum gave us the opportunity to engage with over 1,000 participants in person.
Research and Development
Our research and development organization is responsible for the design, development, and testing of our technology. We utilize agile software development methodologies and industry best practices, such as continuous integration/continuous deployment, automated testing, and distributed version control, to develop new functionality and enhance our existing solution.
Competition
We face competition for our solutions from a wide range of offerings including manual in-house processes, similar functionality bundled with a core solution and separate point solutions offered by competitors. While this competition impacts each of the markets we target, we do not believe there are any competitors that provide all of the solutions and connections that we provide. We compete in a variety of categories, particularly Loan Origination and associated functionality and Data Verification. We believe we have a strong and defensible position in our target market due to the breadth of our capabilities, the depth of our functionality (developed and enhanced throughout our multi-decade history), our integration across loan types, our Partner Marketplace, and our ability to deliver value through workflow efficiency and the expertise available through our customer success, services and support teams.
Loan Origination
Our competitors generally do not compete across the full spectrum of our loan origination capabilities. Within non-mortgage consumer loan origination, our main competition is our customer’s core banking system provider, such as Fiserv, Inc., Fidelity National Information Services, Inc., Jack Henry & Associates, and Temenos. Some of these competitors are also current MeridianLink partners and/or white label our solutions. Other financial technology software companies, such as nCino and Q2, also have competitive functionality. Additionally, we compete with customers who have a narrower focus like CU Direct’s Origence product and Sync1 Systems product offering. Financial institutions rely on streamlined, personalized consumer lending solutions in order to accurately and efficiently open and process all types of accounts and loans.
Our primary competitors in the mortgage loan origination market are Calyx, Intercontinental Exchange, Mortgage Cadence, and, to a lesser extent, Optimal Blue and Empower LOS, which were acquired by subsidiaries of Constellation Software Inc. in 2023 in connection with divestitures by Black Knight. The capabilities provided by a mortgage loan origination system are a point of focus for financial institutions as decreasing mortgage loan volume and rising origination costs continue to drive demand for systems that optimize lending decisions and loan composition in an automated, accurate manner. We believe our cloud-based, end-to-end, multi-channel platform, MeridianLink One, serving all consumer loan and account types allows us to differentiate ourselves from our competitors.
Data Verification
We compete with both direct competitors and vendors who have developed proprietary in-house solutions that replicate the functionality of our Data Verification Software Solution. CRAs that have developed proprietary in-house credit reporting capabilities include CoreLogic and CBC Innovis, and proprietary in-house background screening capabilities include HireRight and Checkr. We have a limited number of competitors that provide a platform solution similar to the capabilities of MeridianLink Mortgage Credit Link, but there is more direct competition in background screening, including Accio and Deverus. The delivery of secure and accurate data from disparate sources to institutions has become increasingly important as they rely more on independent verification services. We believe that we distinguish ourselves in this area by providing instant access to a rapidly growing network of consumer credit, data, and verification service providers, including Fannie Mae and Freddie Mac.
We believe the principal competitive factors in our market include:
•product features, performance, and effectiveness;
•solution line breadth, depth, and continuity;
•reliability and security;
•cloud-based technology platform and subscription pricing model;
•quality of implementation and customer support services;
•capability for configuration, integration, and scalability;
•ease of use and efficient workflows;
•level of customer satisfaction;
•price, commercial model, and total cost of use;
•strength of sales and marketing efforts;
•client experience;
•comprehensiveness of solutions; and
•delivery of process automation for financial institutions.
Government Regulation
As a technology service provider to banks and credit unions, we are not required to be chartered by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, or other federal or state agencies that regulate or supervise our customers and other providers of financial services. The U.S. lending industry is heavily regulated. Originators, lenders, CRAs, and service providers that we do business are subject to federal, state, and local laws that regulate and restrict the manner in which they operate in the lending industry, including, but not limited to, the Real Estate Settlement Procedures Act of 1974, as amended, the Truth in Lending Act of 1968, as amended, the Equal Credit Opportunity Act of 1974, as amended, and the Fair Credit Reporting Act of 1970, as amended, or FCRA. Other than our indirect, wholly-owned subsidiary, Professional Credit Reporting, Inc., which is a consumer reporting agency and is subject to the FCRA, and MeridianLink Wholesale Data, LLC, a wholesale data company, we are not directly subject to these laws and regulations; however, changes to these laws and regulations could broaden the scope of parties or activities subject to regulation and require us to comply with their restrictions, and new solutions and services developed by us may be subject to, or have to reflect, these laws or regulations. For more information about governmental regulations applicable to our business, refer to “Risk Factors” in Item 1A.
Information Security
We have an established information security program informed by the NIST SP 800-53 standard and the Payment Card Industry, or PCI, Data Security Standard, or DSS. Our program is led by our Chief Information Security Officer and implemented by a dedicated information security team. Our solutions currently are hosted in data centers and public cloud providers located within the United States. We monitor our infrastructure for signs of failure and seek to take preemptive action in an effort to minimize and prevent downtime. Our data centers employ advanced measures designed to protect the integrity and security of our data. We have also implemented disaster recovery measures and continue to invest in our data center and other technical infrastructure.
Customer data processed by our servers is encrypted, password protected, and stored on secure hardened servers. Customers transmit data to our servers though a TLS encryption channel, and data at rest is encrypted. We also employ anti-virus, anti-malware, and advanced threat protection capabilities. We engage a third-party audit firm to conduct an annual SOC 2 Type 2 audit of our information security program and a PCI-DSS audit of our cardholder data environment.
Cyclicality and Seasonality
The demand for loan originations is affected by consumer demand for non-asset backed financing, such as personal loans or credit cards, and the market for buying, selling, financing, and/or re-financing assets, which in turn, is affected by the national economy, regional trends, property valuations, interest rates, and socio-economic trends and by state and federal regulations and programs which may encourage or discourage certain purchasing trends. Our business is generally subject to seasonal trends with activity generally decreasing during the winter months, especially home purchase loans and related services. Our lowest revenue levels during the year have historically been in the fourth quarter, but this may not be indicative of future results.
Additionally, the timing and amount of any transaction revenue generated in excess of the contractually committed monthly minimum fee can be subject to fluctuations of consumer behavior tied to seasonality as well as macroeconomic conditions that impact consumer loan volumes. The timing of our implementation activities and corresponding revenues from new customers also are subject to fluctuation based on the timing of our sales and complexity of the delivery. Sales may tend to be lower in the first quarter of each year than in subsequent quarters, but any resulting impact on our results of operations has been difficult to measure due to the timing of our implementations and overall growth in our business. The timing of our implementations also varies period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers, and the readiness of our customers to implement our solutions. Our solutions are often the most frequent point of engagement between our customers and their clients. As a result, we and our customers are very deliberate and careful in our implementation activities to help ensure the successful roll-out of our solutions. Unusually long or short implementations, for even a small number of customers, may result in short-term quarterly variability in our results of operations.
Intellectual Property
We rely on a combination of trademarks, copyrights, rights under trade secret laws, patents, license agreements, confidentiality procedures, non-disclosure agreements, and employee disclosure and invention assignment agreements, as well as other legal and contractual rights, to establish and protect our proprietary rights. We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names in the United States to the extent we determine appropriate and cost-effective. As of December 31, 2024, we have a total of 13 registered trademarks in the United States. We also have registered domain names for websites that we use in our business, such as www.meridianlink.com and other variations, including domains from acquisitions. Additionally, the U.S. Patent and Trademark Office issued to MeridianLink U.S. Patent Number 11,250,505. The patent is titled “Optimizing Loan Opportunities in a Loan Origination Computing Environment” and relates to MeridianLink’s loan origination platforms. MeridianLink also has certain patents by assignment from its acquisition of StreetShares.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged.
Human Capital Management
We believe that our success in providing great products and support to our customers is due in large part to the drive, creativity, and overall strength of our workforce. One of our core business objectives is to foster an exceptional employee experience. We strive to provide programs and initiatives for our employees to help attract, motivate, and retain highly qualified talent. As of March 6, 2025, we had a total of 682 employees, all operating within the United States. None of our employees are represented by a labor union, and we have not experienced any work stoppages. We believe our employee relations are strong based on employee surveys and feedback. We are proud to have earned the Great Place to Work® certification in 2020, 2021, 2022, 2023, and 2024. In 2024, we were recognized in the top 50 of the 2024 IDC Global FinTech 100 Rankings. In 2024, we also received the HousingWire Tech 100 award for the seventh time.
Growth and Development
We foster a learning culture where employees are empowered to drive their career progression through personal and professional development. We have partnered with LinkedIn Learning to provide a diverse range of virtual training, development programs, and on-demand resources that employees can use to excel in their careers and personal life. We also encourage employees to maintain relevant professional credentials and licensing and pay for required continuing education or other professional certification requirements. We launched a company-wide wellness program to encourage healthy habits and personal wellness for all of our employees, with a particular focus on mental health and well-being. Our program includes stress reduction programs and tools, nutrition education, fitness challenges, and incentives.
Compensation and Benefits
Our compensation program is designed to attract, reward, and retain talented individuals who possess the skills necessary to support our business, contribute to our strategic goals, and create long-term value for our stockholders. We believe that our employees should have a strong work/life balance, develop and grow personally and professionally, and be able to save for their future. We provide employees with industry-competitive compensation and benefits, including retirement savings programs with matching contributions, the opportunity to invest in MeridianLink stock at a discount through our Employee Stock Purchase Plan, and medical, dental, vision, and life and disability plans. We evaluate both compensation and benefit offerings on an annual basis and make adjustments accordingly, as appropriate.
Employee Engagement
Listening to our employees is a core component of our employee engagement strategy. Being able to understand the needs, wants, preferences, and feedback of our employees is critical to the design of our employee programs. We hold regular company-wide updates to welcome new employees, celebrate milestone anniversaries, and provide important business updates. We survey our employees regularly through pulse-style surveys on a range of topics, as well as an annual survey conducted by a third-party organization. Our leadership team carefully considers the feedback received from these surveys and focuses on making changes to become a better place to work for our employees. We hold engagement events regularly, such as trivia contests, virtual cooking classes, guest entertainers, employee development sessions, and executive brown-bag lunches.
Giving back to our communities is important to us. That is why every employee is given a paid day each year to volunteer for a 501(c)(3) charity of their choice. In 2022, we started volunteer events in the regions where we have the largest populations of employees to help give back and build connections for our employees, and we expect to continue to grow this program each year.
Available Information
Our website is located at meridianlink.com, and our investor relations website is located at ir.meridianlink.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, and amendments to these reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are available free of charge on our investor relations website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. The SEC maintains a website at http://www.sec.gov that contains reports and other information regarding us and other companies that file materials with the SEC electronically. Also available on our investor relations website are our definitive proxy statements, charters of the committees of our board of directors, corporate governance guidelines, and code of business conduct and ethics. These documents are available free of charge to any stockholder upon request. We use our investor relations website, press releases, SEC filings, public conference calls and webcasts, blog posts on our website, as well as our social media channels, such as our LinkedIn page (www.linkedin.com/company/meridianlink), X (formerly Twitter) feed (@meridianlink), and Facebook page (www.facebook.com/MeridianLink/), as means of disclosing material information and for complying with our disclosure obligations under Regulation FD. The information contained on or accessible through the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this report, and links for these websites are intended to be inactive textual references only.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Investing in our common stock involves substantial risks. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the financial statements and the related notes, before deciding to invest in our common stock. Any of the risk factors we describe below could have a material adverse effect on our business, financial condition, results of operations, cash flow, and prospects. The market price of our common stock could decline if one or more of these risks or uncertainties develop into actual events, causing you to lose all or part of your investment. Other risks, events, and uncertainties that we do not currently anticipate or that we currently deem immaterial may also affect our business. Certain statements contained in the risk factors described below are forward-looking statements. See the section titled “Special Note about Forward-Looking Statements” for more information.
Summary of Risk Factors
The following risk factor summary provides an overview of the inherent uncertainty investing in us presents. This summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this section as well as elsewhere in this Annual Report on Form 10-K. The risks and uncertainties to which our business is subject include, but are not limited to, the following:
Risks Related to Our Strategy and Industry
•The lending market and the broader financial services industry in which our customers operate are subject to various economic factors (such as rising interest or inflation rates), the deterioration of which would directly affect our performance.
•Failure to retain or attract customers, innovate our platform and its capabilities, address technological requirements, or increase brand recognition may limit both growth and profitability.
•Opportunities to grow our business may be limited by inability to identify suitable partnerships, acquisitions, or new business opportunities, or to effectively integrate businesses we acquire.
•Changing dynamics, such as pricing pressure, new entrants, and customer preferences, within our highly-fragmented and competitive landscape may adversely affect our operations.
Risks Related to Our Business and Operations
•Any disruption in the performance or delivery of our software solutions, whether due to security compromises, third-party providers, or other unforeseeable circumstances, could affect brand perception, decrease demand, and subject us to substantial liability.
•Integration or implementation challenges could affect the functionality of our software solutions and delay revenue recognition.
•Challenges in measuring and tracking key operating metrics could affect our ability to consistently report results over time or develop long-term strategies.
•The seasonal and cyclical nature of our business, including our usage and volume-based pricing and sales process, could result in volatility in our operating results.
•Failure to retain or expand personnel, including management, sales, marketing, development, and support functions, to sustain our growth and infrastructure or failure to execute any restructuring plan, including realizing the anticipated benefits of such plan, may result in operational disruptions, reduced sales opportunities, and increased expenses.
•Our success is dependent on our ability to retain and attract product partners to drive further volume through our platform.
Risks Related to Legal and Regulatory Matters
•Failures in data protection, privacy, and information security and intellectual property rights could critically impair our offerings and ability to conduct business.
•Failure to comply with laws and regulations as a technology provider to our customers who operate in a highly regulated industry, as well as failure to create solutions that assist our customers to comply with their regulatory requirements, could disrupt our operations and result in significant expense to alter and update our solutions.
•Changes in laws and regulations could affect our ability to compete, require us to change our pricing model, or result in additional expenses.
Risks Related to Finance and Accounting
•Fluctuations in performance and our inability to accurately forecast results may affect our market perception.
•Accounting treatments may cause fluctuations in earnings that do not fully reflect the underlying performance of our business.
•Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income, and therefore our use of those deferred tax assets may be limited.
•High levels of indebtedness, as well as the terms of our existing debt, or our inability to effectively access capital markets may restrict our ability to compete, react to changes in our business, and fund future needs.
•We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or are unable to maintain effective internal controls over financial reporting and disclosure controls and procedures, we may be unable to timely and accurately report our financial results.
•Changes in applicable tax laws, rules, or regulations could adversely affect our financial position.
Risks Related to Potential Conflicts of Interests and Related Parties
•Thoma Bravo holds a significant stake in our company, and their interests may conflict with ours and those of our other stockholders.
Risks Related to Our Common Stock and Governance Structure
•Market conditions, issuances of additional or preferred stock, and payments of dividends may result in dilution or otherwise affect our stockholders’ return on investment.
•The consummation, suspension, or termination of our capital allocation strategies, including any stock repurchases, may affect our stock price, stock volatility, or liquidity.
•Delaware law and certain provisions in our charter and bylaws could restrict certain strategic activity or limit stockholder actions that may be beneficial or favorable to our stockholders.
Risks Related to Our Strategy and Industry
Lending volume is subject to various economic factors, including increased interest rates, and lending volumes may remain low in 2025, which could adversely affect our business.
Factors that adversely impact lending volumes include reduced consumer and investor demand for loans, more stringent underwriting guidelines, supply chain shortages for goods subject to financing, high levels of unemployment, high levels of consumer debt, lower consumer confidence, changes in tax and other regulatory policies, and other macroeconomic factors.
In addition, interest rates are influenced by a number of factors, particularly monetary policy, and many economists predict that interest rates on mortgage and non-mortgage loans will not fall meaningfully until the Federal Reserve meaningfully lowers the Federal Funds Rate. The Federal Reserve began to gradually lower the Federal Funds Rate after maintaining elevated levels to combat higher than expected inflation in the United States in 2024. However, there is no guarantee that the Federal Reserve will lower the Federal Funds Rate in the future. For example, the Federal Reserve held the Federal Funds Rate at its current rate at the first Federal Open Market Committee Meeting in 2025 citing concerns of elevated inflation. Elevated interest rates have reduced the volume of new mortgages and non-mortgage loans originated, and further increases in interest rates could reduce the volume of loans originated.
The lower levels of loan market volume in recent years required us to increase either our share of loan volume, our revenues per module through increased cross-sell of our solutions, or both, in order to maintain our financial performance. Any additional decrease in loan market volumes would exacerbate our need to increase either our share of loan volume, our revenues per module through increased cross-sell of our solutions, or both. We cannot assure you that we will be successful in our efforts to increase either our share of loan volume, our revenues per module through increased cross-sell of our solutions, or both, which could materially adversely affect our business.
If we fail to increase the number of our customers or retain existing customers, our business may be harmed.
Our growth depends in large part on increasing the number of customers using our software solutions. To attract customers to our solutions, we must convince them that the utility of, and access to, our software solutions can assist them in their digital transformations, help create new revenue streams, and increase engagement with their customers. In particular, we must enhance the features and functionality of our software solutions and convince financial institutions of the benefits of our software solutions and encourage them to switch from competing loan origination, digital lending, and data analytics solutions or to forgo using more traditional processes and procedures, including (with respect to the loan origination business) paper, facsimile, courier, mail, and email processing.
Due to the fragmented nature of the consumer lending (including mortgage) and CRA industries, many industry participants may not be familiar with our software solutions and the benefits of our solutions. Any consolidation in our industry could also decrease our market advantage and may impact our competitive position. Some of our current and potential customers have developed, and may continue to develop, their own proprietary technologies and may one day replace our solutions with their own technology or even become our competitors. As our customers increase their spend with us, there may be internal pressure to evaluate and potentially create their own internal solutions as a cost-savings measure. We cannot assure you that we will be successful in attracting new customers or retaining existing customers, and increased competition from both competitors and any internal development efforts by our current customers could harm our business.
Additionally, with increased competition or in challenging economic conditions, existing customers may decide not to continue to use our software solutions in favor of other alternatives for financial or other reasons or as a result of financial distress or ceasing operations. Customer attrition could impact the performance of our business in the future. We have agreements in place with various product partners with respect to the integration between their businesses and our solutions, such as e-signing vendors, insurance providers, dealership integrators, credit card processors, home banking systems, and settlement service tools. Most of these contracts are not long term or are subject to termination rights. An unexpected termination, or a failure to renew, of a significant number of our agreements or relationships with these platform partners could have an adverse effect on our business as our customers may find our solutions less valuable without these integrations. If we lose existing platform partners due to terminations or failures to renew our agreements, we would also lose revenues associated with such platform partners, which could have a material adverse impact on our results of operations and financial condition.
In addition, our recent development efforts have been focused on our cloud-based offerings, and, as a result, we have not invested in upgrading certain legacy products or developing added functionality for them, and may not invest in certain products in the future, including legacy products acquired through past strategic transactions, such as the acquisition of CRIF in 2018. As a result, customers using these legacy products may determine that these legacy offerings no longer satisfy their needs. If we are unsuccessful in transitioning these customers to our newer, cloud-based offerings, these customers may cease doing business with us. Therefore, we must continue to demonstrate to our customers that using our solutions is an effective and cost-efficient way to maximize their results, and if we are not successful, our business and results of operations could be materially and adversely impacted.
We may not accurately predict the long-term rate of customer subscription renewals or adoption of our software solutions, or any resulting impact on our revenues or operating results.
Our customers have no obligation to renew their subscriptions for our software solutions after the expiration of the initial or current subscription term, and our customers, if they choose to renew at all, may renew for shorter subscription terms, or on less favorable usage-based or volume-based pricing terms. We cannot be certain of anticipated renewal rates and that any historical data we use to predict anticipated renewal rates will be accurate. Our renewal rates may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our pricing or our software solutions or their ability to continue their operations or spending levels. Strategic acquisitions can further complicate our ability to predict customer subscription renewals. If our customers do not renew their subscriptions for our software solutions on similar pricing terms, our revenues may decline and our business could suffer.
Additionally, as the markets for our solutions develop, or as new or existing competitors introduce new solutions or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers, or we may be unable to attract new customers based on the same subscription models that we have used historically or at fee levels that are consistent with our pricing models and operating budget. Moreover, large or influential customers may demand more favorable pricing or other contract terms from us. In addition, our pricing strategy for new solutions may prove to be unappealing to our potential customers, and our competitors could choose to bundle certain solutions and services competitive with ours. If any of these were to occur, we may in the future be required to change our pricing model, reduce our prices, or accept other unfavorable contract terms, any of which could adversely affect our revenues, gross margin, profitability, financial position, cash flow, or growth prospects.
If we cannot continue to innovate our platform and its capabilities or address evolving technological requirements, our software solutions could become obsolete or less competitive and our revenue growth rate may be reduced.
The market for our software solutions is characterized by rapid technological advancements, changes in customer requirements and technologies, frequent new solution introductions and enhancements, and changing regulatory requirements. The life cycles of our software solutions are difficult to estimate. Rapid technological changes and the introduction of new products and enhancements by new or existing competitors or large financial institutions could undermine our current market position. Other means of digital or virtual consumer lending and banking may be developed or adopted in the future, and our software solutions may not be compatible with these new technologies. In addition, the technological needs of, and services provided by, the banks, credit unions, mortgage lenders, specialty lending providers, and CRAs that we endeavor to serve may change if they or their competitors offer new services to account holders. Maintaining adequate research and development resources to meet the demands of the market is essential. The process of developing new technologies and software solutions is complex and expensive. The introduction of new products by our competitors, the market acceptance of competitive products based on new or alternative technologies, or the emergence of new technologies or products in the broader financial services industry has in the past and could in the future render our solutions obsolete or less effective.
The success of any enhanced or new software solution depends on several factors, including timely completion, adequate testing, and market release and acceptance of the solution. Any new software solutions that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the broad market acceptance necessary to generate significant revenues. In addition, we must continuously develop, market, and sell new features and functionalities to our existing software solutions that respond to the changing needs of our customers and offer better functionality than competing offerings from other providers. If we are unable to anticipate customer requirements or work with our customers successfully on implementing new software solutions or features in a timely manner or enhance our existing software solutions to meet our customers’ requirements, our business, growth prospects, and operating results may be adversely affected.
We have entered, and may in the future enter into, partnership agreements with third parties for reseller and referral services, which may adversely affect our ability to generate revenues.
We have entered into and may seek to enter into additional collaborations or partnerships with third parties for reseller services. While we are not substantially dependent upon referrals from any partner, our ability to achieve significant revenue growth in the future will depend upon continued referrals from our partners and growth of the network of our referral partners. Should we seek to collaborate with a third party with respect to a prospective reseller program, we may not be able to locate a suitable partner or to enter into an agreement on commercially reasonable terms or at all. Even if we succeed in securing partners for reseller services, such as the arrangement we have entered into with Jack Henry & Associates, Inc., we have limited control over the time and resources that our partners may dedicate to such services. These partnerships pose a number of risks, including the following:
•partners are under no contractual obligation to continue to refer business to us and further may terminate our reseller or referral arrangement, or may decide not to expand their relationship with us;
•partners may not have sufficient resources, or may decide not to devote the necessary resources to promoting or selling our solutions;
•partners do not have exclusive relationships with us and may decide to pursue a competitive product developed outside of the collaboration arrangement; and
•our competitors may be effective in providing incentives to our partners to favor their software products or prevent or reduce subscriptions to our software solutions.
As a result of the foregoing risks and others, partnership agreements may not lead to successful reseller programs. We also face competition in seeking out partners, and establishing and retaining qualified partners and training them with respect to our software solutions requires significant time and resources. If we are unable to secure new partnerships that achieve the partner’s objectives and meet our expectations, we may be unable to generate meaningful revenues, and we may lose sales opportunities if we are unable to devote significant time and resources to establish and train partners or if we are unable to maintain successful relationships with them.
We may acquire or invest in companies, or pursue business partnerships, which could prove difficult to integrate, divert our management’s attention, or dilute stockholder value, and we may be unable to realize the expected benefits of such acquisitions, investments, or partnerships.
We have completed, and may in the future, consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products, and other assets. We may also enter into relationships with other businesses to expand our platform capabilities, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies. Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to close these transactions may be subject to approvals that are beyond our control. If an acquired business fails to meet our expectations, our operating results, business, and financial position may suffer. We may not be able to find and identify desirable acquisition targets, we may incorrectly estimate the value of an acquisition target, and we may not be successful in entering into an agreement with any particular target. We may not integrate an acquired company smoothly, successfully, or within our budgetary expectations and anticipated timetable. If we are successful in acquiring additional businesses, we may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
•our inability to integrate or benefit from developed technologies or services;
•unanticipated costs or liabilities associated with the acquisition;
•incurrence of acquisition-related costs;
•difficulty, including unanticipated delays, costs, or inefficiencies associated with, integrating the operational and compliance policies and practices, technology, accounting systems, operations, and control environments of the acquired business and integrating the acquired business or its employees into our culture;
•difficulties and additional expenses associated with supporting legacy products and infrastructure of the acquired business;
•difficulty retaining or converting the customers of the acquired business to our software solutions and contract terms, including disparities in subscription terms, or the acquisition of existing customer agreements with less than favorable terms;
•difficulty retaining or leveraging partnerships of the acquired business and contract terms;
•additional costs for the support or professional services model of the acquired company;
•diversion of management’s attention and other resources;
•adverse effects to our existing business relationships with business partners and customers;
•the issuance of additional equity securities that could dilute the ownership interests of our stockholders;
•incurrence of debt on terms unfavorable to us or that we are unable to repay;
•incurrence of substantial liabilities;
•difficulties retaining key employees of the acquired business; and
•adverse tax consequences, substantial depreciation, or deferred compensation charges.
Accordingly, we have in the past and may in the future fail to realize some of the anticipated benefits of the acquisition, such as increase in our scale, diversification, cash flows, and operational efficiency. In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
The markets in which we participate are intensely competitive and highly fragmented, and pricing pressure, new technologies, or other competitive dynamics could adversely affect our growth, business, results of operations, and future prospects.
The markets in which we compete, however, are highly competitive, fragmented, evolving, complex, and defined by rapidly changing technology and customer demands. We currently compete with providers of technology and products in the financial services industry, primarily point solution vendors that focus on building functionality that competes with specific components of our solutions. From time to time, we also compete with systems internally developed by financial institutions.
Many existing and potential competitors enjoy substantial competitive advantages, such as:
•larger sales, development, support, and marketing budgets and resources;
•the ability to bundle competitive offerings;
•greater brand recognition and longer operating histories;
•more extensive customer bases and broader customer relationships;
•lower labor and development costs;
•greater resources to make acquisitions;
•larger and more mature intellectual property portfolios; and
•substantially greater financial, technical, management, and other resources.
Further, one of our competitors may establish or strengthen a cooperative relationship with, or acquire one or more software application, data analytics, compliance, or network vendors. We may also face competition from new companies entering our markets, which may include large established businesses that decide to develop, market, or resell cloud-based banking technology, acquire one of our competitors, or form a strategic alliance with one of our competitors. New companies entering our markets may choose to offer cloud-based consumer lending and related products at little or no additional cost to the customer by bundling them with their existing products, including adjacent financial services technologies. In addition, our current and potential customers have developed, and may continue to develop, their own in-house solutions that could replace our solutions within their organizations.
We expect competition to intensify in the future, and these competitive pressures in our markets or our failure to compete effectively may result in fewer customers, increased pricing pressure, reduced revenues and gross profit, increased sales and marketing expenses, and loss of market share. Any failure to meet and address these factors could materially and adversely affect our business, operating results, and financial condition.
If the market for cloud-based solutions develops more slowly than we expect or changes in a way that we fail to anticipate, our sales would suffer and our results of operations would be adversely affected.
We do not know whether our prospective customers will continue to adopt cloud-based financial products such as our software solutions or whether the market will change in ways we do not anticipate. Many potential customers have invested substantial personnel and financial resources in legacy software, and these institutions may be reluctant, unwilling, or unable to convert from their existing systems to our solutions. Furthermore, these potential customers may be reluctant, unwilling, or unable to use cloud-based financial solutions due to various concerns such as the security of their data and reliability of the delivery model. These concerns or other considerations may cause prospects to choose not to adopt cloud-based financial products such as ours or to adopt them more slowly than we anticipate, either of which would adversely affect us. Our future success also depends on our ability to sell additional solutions and functionality to our current and prospective customers. As we create new solutions and enhance our existing solutions to meet anticipated market demand, these solutions and enhancements may not be attractive to customers. In addition, promoting and selling new and enhanced functionality may require increasingly costly sales and marketing efforts, and if customers choose not to adopt this functionality, our business and results of operations could suffer. If potential customers are unwilling or unable to transition from their legacy systems, or if the demand for our solutions does not meet our expectations, our results of operations and financial condition will be adversely affected.
We derive a significant majority of our revenues from customers in the financial services industry, and any downturn or consolidation or decrease in technology spend in the financial services industry could adversely affect our business.
A significant majority of our revenues are derived from customers in the financial services industry, an industry which has experienced significant pressure in recent years due to economic uncertainty, elevated and fluctuating interest rates, liquidity concerns, and increased regulation. Although regulations applicable to our customers may change or decrease in connection with changing governmental policies in the U.S., uncertainty or rapid changes in regulations or governmental policies may negatively affect our customers or our business. In addition, in the past, financial institutions have experienced consolidation, distress, and failure. It is possible these conditions may reoccur. For example, in March 2023, after being closed by their respective state authorities, the Federal Deposit Insurance Corporation took control of Silicon Valley Bank and Signature Bank due to liquidity concerns, and a number of other financial institutions experienced turbulence and a precipitous decline in market value. It is possible these conditions may persist, deteriorate or reoccur, and may negatively impact our results of operations and financial condition.
If any of our customers merge with or are acquired by other entities, such as financial institutions that have internally developed technology products or that are not our customers or use our software solutions less, we may lose business. Additionally, changes in management of our customers could result in delays or cancellations of the implementation of our software solutions. Consolidation within the financial services industry could also lead to fewer, but larger customers, who may have increased bargaining power, which could lead to lower prices or more favorable terms for our customers. Our business may also be materially and adversely affected by weak economic conditions in the financial services industry generally. Any downturn in the financial services industry may cause our customers to reduce or delay their spending on technology or cloud-based financial products, renegotiate their contracts with us, or seek to terminate as a result of financial distress.
Additionally, a prolonged economic slowdown may result in reduced consumer demands for loans and reduced application volume for credit, employment, tenant, or other forms of screening, which would negatively impact our revenues from existing customers due to the volume-based aspect of our customer agreements. Moreover, even if the overall economy is robust, economic fluctuations caused by factors such as the U.S. Federal Reserve changing interest rates or otherwise managing market liquidity may cause potential new customers and existing customers to become less profitable and therefore forego or delay purchasing our software solutions or reduce the amount of spend with us, which would also materially and adversely affect our business.
Risks Related to Our Business and Operations
Uncertain or weakened economic conditions, including as a result of elevated interest rates, inflation, and changes in governmental policies or regulations in connection with the new presidential administration, may continue to heighten many of our known risks and has affected, continues to affect, and may adversely affect our industry, business, and results of operations.
Our overall performance depends on economic conditions, which are beyond our control and may be difficult or impossible to forecast. The United States and other key international economies have experienced significant economic and market downturns and periods of uncertainty, including recently in connection with elevated interest rates and inflation, and are likely to experience additional cyclical downturns from time to time, in which economic activity is impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, inflation, fluctuations in interest rates, reduced corporate profitability, volatility in credit and equity markets, bankruptcies, and overall uncertainty. Macroeconomic developments can arise suddenly, as did the conditions associated with the fluctuating rates of inflation, and the full impact can be difficult to predict. Changes in laws, policies and regulations, including in connection with changes in policies and regulations in connection with the new presidential administration, and adverse macroeconomic conditions, including inflation, slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher or fluctuating interest rates, high unemployment, and currency fluctuations have in the past and may in the future adversely impact the rate of technology spending generally and could adversely affect our customers’ ability or willingness to purchase our software solutions, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, or impact the demand for our customers’ services, any of which could adversely affect our results of operations. In addition, changes in laws, regulations, and governmental policies may require us to devote significant time and resources to modify our solutions to reflect such changes in law, regulations, and governmental policies. As a result, our operating results are sensitive to changes in political and macroeconomic conditions that impact our customers’ technology spending and overall usage, volume, and type of transactions handled or processed using our software solutions.
We continue to evaluate, and adjust, our hiring plans and investment spending accordingly. We are monitoring the potential effects of changed rate of spending on software solutions, purchasing decisions, delayed payments, and supply chain shortages on our business. To the extent economic volatility adversely affects our business, results of operations, financial condition, or liquidity, many of the other risks described in this “Risk Factors” section may also be heightened.
A cybersecurity incident, data breach, or other compromise of our cybersecurity measures or those of the third parties we rely on could result in unauthorized access to or other compromise of customers’ data or customers’ clients’ data, which may adversely impact our reputation, business, and results of operations.
Certain elements of our business and software solutions, particularly our origination and analytics solutions, involve the processing and storage of personally identifiable information, or PII, such as banking information and PII of our customers’ clients. We may also have access to PII during various stages of the implementation process of our solutions or during the course of providing customer support. Furthermore, as we develop additional functionality, we may gain greater access to PII and process additional PII. While we maintain policies, procedures, and technological safeguards designed to protect the confidentiality, integrity, and availability of this information and our information technology systems, we cannot entirely eliminate the risk of improper, unlawful, or unauthorized access to, or disclosure, alteration, corruption, unavailability, or loss of PII or other data that we process or maintain, other security events that impact the integrity or availability of PII or other data or our systems and operations, or the related costs we may incur to mitigate the consequences from certain events such as the following:
•third-party social engineering attempts (including phishing attacks) to fraudulently induce our employees, partners, or customers to disclose sensitive information;
•malicious intrusions and attacks by individuals or groups of hackers and sophisticated organizations, such as state-sponsored organizations or nation-states, to launch coordinated attacks, such as ransomware and distributed denial-of-service attacks;
•cyberattacks such as ransomware on our internally built infrastructure on which many of our solutions operate, or on third-party cloud-computing platform providers;
•vulnerabilities resulting from the configuration, implementation, enhancement, or update of our software solutions, as well as in the products or components across the broad ecosystem that our solutions operate in conjunction with and are dependent on;
•vulnerabilities or breach of those third-party providers’ (cloud, software, data center, and other critical technology vendors) software, systems, or security measures or a failure in our third-party providers’ data security procedures, measures, and policies;
•vulnerabilities existing within new technologies and infrastructures, including those from acquired companies;
•attacks on, or vulnerabilities in, the many different underlying networks and services that power the Internet that our products depend on, most of which are not under our control or the control of our vendors, partners or customers; and
•employee or contractor human errors or intentional insider threats that compromise our security systems.
As we integrate artificial intelligence, or AI, technologies to enhance efficiency and innovation, we must acknowledge associated cybersecurity risks. AI systems, while beneficial, can be exploited by cybercriminals for sophisticated attacks that evade traditional security measures. Bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse of PII, confidential data, and intellectual property. Unauthorized access to AI tools may lead to data manipulation, deepfake generation, and highly personalized spear-phishing campaigns. The rapid advancement of AI increases complexity in cyber threats.
Although we have developed systems and processes designed to protect our customers’ clients’ sensitive data, we can provide no assurances that such measures will provide absolute security or that a cybersecurity incident, data breach, or other compromise will not occur. Our efforts to prevent, contain, and mitigate cyberattacks and other threats to our information technology systems may be impacted by factors such as:
•changes to, and complexity of, techniques used to obtain unauthorized access to, or sabotage IT systems and infrastructure, which generally are not identified until after an initial launch against a target, resulting in a reduced ability to anticipate or implement adequate preventive measures;
•continued refinement, updating, and replacement of our internal systems and technology, particularly when adopting new technologies and new methods of sharing data and communicating internally and with customers and partners;
•the acquisition of new companies and their solutions, requiring us to integrate, improve, and secure different or more complex IT environments and technologies;
•authorization by our customers to third-party technology providers to access their clients’ data, which may lead to our customers’ inability to protect their data that is stored on our servers;
•our limited control over our customers or third-party technology providers, or the processing of data by third-party technology providers, which may not allow us to maintain the integrity or security of such transmissions or processing; and
•increased risk of security compromises associated with our employees working remotely.
A cybersecurity incident, data breach, or other compromise could result in operational disruptions, loss, compromise, unauthorized use of, or access to, alteration, or corruption of customer data or customers’ client data or data we rely on to provide our software solutions, including our analytics initiatives and offerings, that impair our ability to provide our software solutions and meet our customers’ requirements. Such impairment would result in decreased revenues and could otherwise negatively impact our financial results. Also, the occurrence, or perception of an occurrence, of any of these events could results in a loss of confidence in the security of our services, irreparable reputational damage, a decline in current and prospective customer use of our software solutions, business disruptions, increases in cybersecurity insurance premiums, and allocation of significant financial and operational resources in response, including repairing system damage, increasing security protection costs by deploying additional personnel and protection technologies, and defending against and resolving legal and regulatory claims and proceedings.
The detection, prevention, and remediation of known or potential security vulnerabilities, including those arising from third-party hardware or software, may result in additional financial burdens due to additional direct and indirect costs, such as additional infrastructure capacity spending to mitigate any system degradation and the reallocation of resources from development activities. Furthermore, cybersecurity incidents, data breaches, and other compromises could expose us to legal, regulatory, and financial exposure and liability, notification requirements to affected stakeholders (including affected individuals, customers, investors, and regulators), third-party claims and lawsuits, indemnification, or other claims from customers and other third parties, regulatory investigations or proceedings, fines, or other actions or liabilities, which could adversely affect our business and results of operations. In addition, some of our customers contractually require notification of cybersecurity incidents, data breaches, and other compromises and include representations and warranties in their contracts with us that our software solutions comply with certain legal and technical standards related to cybersecurity and privacy and meets certain service levels. In certain of our contracts, a cybersecurity incident, data breach, or other compromise or operational disruption impacting us or one of our vendors, or system unavailability or damage due to other circumstances, may constitute a breach of contract and give rise to a customer’s right to terminate their contract with us or may cause us to be liable for certain monetary penalties, including as a result of a failure to meet service level agreements.
We moved to a fully remote work-from-home work model in 2020 and plan to continue operating as remote-first. In connection with the shift, we assessed our IT security measures, identify any vulnerabilities, and enhance protections against unauthorized access to our network and systems. We cannot guarantee these private work environments and electronic connections to our work environment have the same robust security measures deployed in our physical offices. We are unable to unequivocally affirm that the protective measures we have taken will remain sufficient given the ever-changing threat landscape, and any such related security compromise that may occur could materially and adversely impact our business, results of operations, or reputation.
Like other companies in our industry, we, and our third party vendors, have experienced threats and cybersecurity incidents relating to our information technology systems and infrastructure. Because of the frequently changing nature of attack techniques, along with the increased volume and sophistication of the attacks, there is the continued potential for us to be adversely impacted. This impact could result in reputational, competitive, operational or other business harm, as well as financial costs, including fines from regulators and other regulatory action. We maintain cybersecurity insurance in the event of an information security or cyber incident, however, the coverage may not be sufficient to cover all financial losses. In these circumstances, it may be difficult or impossible to cure such a cybersecurity incident, data breach, or other compromise in order to prevent customers from potentially terminating their contracts with us. Furthermore, although our customer contracts typically include limitations on our potential liability, there can be no assurance that such limitations of liability would be adequate. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will be available on acceptable terms or in sufficient amounts to cover one or more claims or that our insurers will not deny or attempt to deny coverage as to any future claim. The successful assertion of one or more claims against us, the inadequacy or denial of coverage under our insurance policies, litigation to pursue claims under our policies, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or coinsurance requirements, could adversely affect our business and results of operations.
Defects, errors, or other performance problems in our software solutions could harm our reputation, result in significant costs to us, impair our ability to sell our software solutions, and subject us to substantial liability.
Our software solutions are complex and, in the past, have contained defects, viruses, or errors when implemented or when new functionality is released. Such defects or disruptions could be the result of undetected vulnerabilities in third-party supplied software and technologies, bug fixes or upgrades, whether in connection with day-to-day operations or otherwise, or employee, contractor, or other third-party acts or inaction. Despite extensive testing, from time to time we have discovered, and may in the future discover, defects or errors in our software solutions. We may experience temporary system interruptions, either to our solutions as a whole, individual software solutions or groups thereof, or to some or all of our software hosting locations, for a variety of reasons, including network failures, power failures, software errors, or an overwhelming number of users trying to access our software solutions during periods of strong demand. Defects, errors, outages, or other performance problems or disruptions in our software solutions or service could be costly for us, damage our customers’ businesses, result in loss of credibility with current or potential customers or partners, and harm our reputation, any of which could result in a material adverse effect on our business, operating results, and financial condition. In addition, our customers could seek to terminate their contracts, elect not to renew their subscriptions, delay or withhold payment, or make claims against us.
Because we are dependent on third parties for the implementation and maintenance of certain aspects of our systems and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, if at all. As we rely heavily on our servers, computer, and communications systems and the Internet to conduct our business, any of these actions could result in liability, lost business, increased insurance costs, difficulty in collecting accounts receivable, costly litigation, or adverse publicity. Errors, defects, or other problems could also result in reduced sales or a loss of, or delay in, the market acceptance of our software solutions.
If we are unable to effectively integrate our software solutions with other systems, products, or other technologies used by our customers and prospective customers, or if there are performance issues with such third-party systems, products, or other technologies, our software solutions will not operate effectively and our operations will be adversely affected.
The functionality of our software solutions depends on our ability to integrate with other third-party systems, products, and other technologies used by our customers. Certain providers of these third-party systems, products, or other technologies also offer products that are competitive with our software solutions. These products may have an advantage over ours if customers using their software are better able to integrate with their own software. In addition, these third-party providers may be able to bundle their competitive products with other applications used by our customers and prospective customers at favorable pricing.
In addition, some of our competitors may be able to disrupt the operations or compatibility of our solutions with their products or services or exert strong business influence on our ability to, and terms on which we, provide our solutions. For example, core banking system companies provide critical back-end services to financial institutions. If these core banking system companies seek to compete with us in the markets we target or make it more difficult for us to integrate our solutions with their offerings, our business and results of operations could be materially and adversely affected. We do not have formal arrangements with all third-party providers regarding our access to their APIs to enable these customer integrations.
Our business may be harmed if any of our third-party providers:
•change the features or functionality of their applications and platforms in a manner adverse to us;
•discontinue or limit our software solutions’ access to their systems or other technologies;
•terminate or do not allow us to renew or replace our existing contractual relationships on the same or better terms;
•modify their terms of service or other legal terms or policies, including fees charged to, or other restrictions on, us or our customers;
•establish exclusive or more favorable relationships with one or more of our competitors, or acquire one or more of our competitors and offer competing services; or
•otherwise have or develop their own competitive offerings.
Third-party services and products are constantly evolving. We may not be able to modify our solutions to assure compatibility with that of other third parties as they continue to develop or emerge in the future or make such modifications in a timely and cost-effective manner. Such changes could limit or prevent us from integrating our software solutions with these third-party systems, which could impair the functionality of, prohibit the use of, or limit our ability to sell our software solutions to customers. If we are not permitted or able to integrate with such third-party technologies as a result of changes to, or third parties restricting our access to, the technologies during the terms of existing customer agreements, we may not be able to meet our contractual obligations to customers who use such third-party software. Should any of our competitors modify their products or standards in a manner that degrades the functionality of our solutions or gives preferential treatment to our competitors or competitive products, whether to enhance their competitive position or for any other reason, the interoperability of our products with these products could decrease, and our business, results of operations, and financial condition would be harmed. In addition, if any third-party technology providers experience an outage, our software solutions integrated with such technology will not function properly or at all, and our customers may be dissatisfied with our software solutions. If the technology of such third-party providers has performance or other problems, such issues may reflect poorly on us, and the adoption and renewal of our software solutions and our business may be harmed. Although our customers may be able to switch to alternative technologies if a provider’s services were unreliable or if a provider were to limit such customer’s access and utilization of its data or the provider’s functionality, our business could nevertheless be harmed due to the risk that our customers could reduce their use of our software solutions.
As the number of customers that we serve increases, we may encounter implementation challenges, and we may have to delay revenue recognition for some complex engagements, which would harm our business and operating results.
We may face unexpected implementation challenges related to the complexity of our customers’ implementation and integration requirements. Our implementation expenses increase when customers have unexpected data, integrations, hardware, or software technology challenges or complex or unanticipated business requirements. In addition, certain of our customers require complex acceptance testing related to the implementation of our software solutions. Further, because we do not fully control our customers’ implementation schedules, implementation issues may occur if our customers do not allocate the internal resources necessary to meet implementation timelines or if there are unanticipated implementation delays. Any difficulties or delays in implementation processes could cause customers to delay or forego future purchases of our software solutions or require us to delay revenue recognition under the related customer agreement longer than expected, either of which would adversely affect our business, operating results, and financial condition.
If we fail to offer high-quality customer support or fail to meet our service level commitments, we could be obligated to provide credits or refunds or face contract terminations, which could adversely affect our business, operating results, reputation and financial condition.
Our customers rely on our customer support services to resolve issues and realize the full benefits provided by our solutions. High-quality support is also important to maintain and drive further adoption by our existing customers. If we do not help our customers quickly resolve issues and provide effective ongoing support or if our support personnel or methods of providing support are insufficient to meet the needs of our customers, our ability to retain customers, increase adoption by our existing customers, and acquire new customers could suffer, and our reputation with existing or potential customers could be harmed. If we are not able to meet the customer support needs of our customers during the hours that we currently provide support, we may need to increase our support coverage and provide additional support, which may reduce our profitability.
Additionally, certain of our agreements with our customers contain service level commitments. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our solutions, we may be contractually obligated to provide these parties with service credits or refunds. In addition, we could face contract terminations, in which case we would be subject to a loss of future revenues. Our revenues could be significantly affected if we suffer unexcused downtime under our agreements with our customers and partners. Further, any extended service outages could adversely affect our reputation, revenues, and operating results.
Certain of our key operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We track certain key operating metrics using internal tools, which have certain limitations. In addition, we rely on data received from third parties, including industry forecast reports, to track certain performance indicators. We have only a limited ability to verify data from both of these sources. Our methodologies for tracking metrics have changed, and may in the future continue to change, which could result in changes to the metrics we report. If we under count or over count performance due to the internal tools we use or issues with the data received from third parties, or if our internal tools contain errors, the data we report may not be accurate or comparable with prior periods. In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer-term strategies.
If our performance metrics are not, or are not perceived to be, accurate representations of our financial or operational performance, if we discover material inaccuracies in our metrics, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business, operating results, and financial condition could be adversely affected.
Our usage and volume-based pricing can cause revenue fluctuation and may adversely affect our business and operating results.
Our customer relationships are generally conducted in accordance with the terms of multi-year contracts that, among other things, may provide for minimum purchases and specified levels of pricing based on the volume of loans, applications, or searches conducted or processed during the applicable billing period. These contractual features are key determinants of profitability. Certain of our contracts provide for contractually scheduled price changes. From time to time, we also negotiate pricing or other changes with our existing customers that include, but are not limited to, extending or renewing a contract or adjusting minimum volumes. Our usage and volume-based pricing, which is seasonal and cyclical, can cause our revenues to fluctuate which could affect our business. Additionally, our usage and volume-based pricing can be negatively impacted by macroeconomic trends, which may disproportionately impact our revenues and operating results.
We depend on satisfied customers to succeed and, in certain instances, have aligned our financial goals with those of our customers. Our historical contracts are subject to de minimis minimum commitments with certain of our customers, who may be less willing or able to accommodate modifications to our contracts given their own business constraints. Such minimum commitment obligations may not be cost-effective or provide positive returns.
Our sales cycle can be unpredictable, time-consuming, and costly, which could harm our business and operating results.
Our sales process involves educating prospective customers and existing customers about the use, technical capabilities, and expected outcomes of our software solutions. Prospective customers often undertake a prolonged evaluation process, which typically involves not only our software solutions but also those of our competitors, and typically lasts from six to nine months or longer. We may spend substantial time, effort, and money on our sales and marketing efforts without any assurance that our efforts will produce any sales. It is also difficult to predict the level and timing of sales opportunities that come from our referral partners. Events affecting our customers’ businesses may occur during the sales cycle that could affect the size or timing of a purchase, contributing to more unpredictability in our business and operating results. As a result of these factors, we may face greater costs, longer sales cycles, and less predictability in the future.
If we fail to effectively expand our sales and marketing capabilities and teams, including through partner relationships, or if we fail to develop, maintain, and enhance our brands, we may not be able to increase our customer base and achieve broader market acceptance of our software solutions.
While we expect to continue to grow headcount in our sales and marketing teams over the long-term, we completed workforce reductions in connection with our 2023 Restructuring Plan and our 2024 Realignment Plan (each as defined below). We may be unable to effectively manage the organizational changes we have made in connection with the 2023 Restructuring Plan and 2024 Realignment Plan, which could result in declines in quality or customer satisfaction, increases in costs, difficulties in obtaining new customers, difficulty in introducing new solutions to our existing customers, difficulty in deploying solutions to new and current customers, reputational harm, loss of customers, or operational difficulties in executing sales and other strategies, any of which could adversely affect our business performance and operating results.
Achieving broader market acceptance of our software solutions will depend on our ability to expand the abilities of our sales and marketing organizations to obtain new customers and sell additional solutions and services to existing customers, including through the use of our formal and informal relationships with our referral and reseller partners. We believe there is significant competition for direct sales and marketing professionals with the skills and knowledge that we require, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future. Moreover, new hires require significant training and time before they become fully productive and may not become as productive as quickly as we anticipate. As a result, the cost of hiring and carrying new representatives cannot be offset by the revenues they produce for a significant period of time.
Furthermore, we believe that maintaining and enhancing the brands associated with our solutions is important to support the marketing and sale of our existing and future solutions to new customers and to increase adoption of our solutions by existing customers. If we fail to sufficiently invest in our marketing programs or they are unsuccessful in creating market awareness of our company and software solutions, our business may be harmed, and our sales opportunities may be limited. Our promotion activities may not generate brand awareness or yield increased revenues, and even if they do, any increased revenues may not offset the expenses we incur in building our brand, which may negatively impact our results of operations.
Our product partners may change their dependence on our system for providing service to their customers, which could harm our business and operating results.
Our continued success will depend in part on our ability to retain a number of key product partners. In addition, we believe that our future success will depend in large part on our ability to attract product partners who utilize our system to service their customers, driving further volumes through our platform. Value associated with our platform is derived from the ability of our customers to access these product partners through our solutions. There can be no assurance that we will be successful in attracting and retaining such partners. The loss of certain key product partners or our inability to attract or retain other product partners could have a material adverse effect on our business, operating results, and financial condition.
We may not achieve some or all of the expected benefits of our restructuring or organizational realignment plans, and such restructuring or realignment may adversely affect our business.
We have undertaken, and may undertake in the future, restructuring, organizational realignment, or other strategic changes in order to manage operating costs, enable efficient delivery on business objectives, allow for growth in areas of strategic importance, adapt our business to serve customers more effectively, align teams with the Company’s highest business priorities, and achieve operating efficiencies, including the restructuring plan approved by our board of directors in February 2023, or the 2023 Restructuring Plan, which was completed during the six months ended June 30, 2023, and the 2024 Realignment Plan approved in January 2024 and completed in the six months ended June 30, 2024. The 2023 Restructuring Plan resulted in restructuring charges of $3.6 million for severance and related costs, and we incurred $4.0 million in connection with the 2024 Realignment Plan. Implementation of any restructuring or organizational realignment plan has in the past and may in the future be costly and disruptive to our business, and we may not be able to obtain the anticipated cost savings, operational improvements, strategic growth, and estimated workforce reductions within the projected timing or at all. Further, we have in the past and may in the future experience a loss of continuity, loss of accumulated knowledge and/or inefficiency, adverse effects on employee morale, and/or key or other retention issues during transitional periods. Restructuring and realignment can require a significant amount of time and focus, which may divert attention from operating and growing our business. For more information about our 2023 Restructuring Plan and 2024 Realignment Plan, see Note 12 to our consolidated financial statements elsewhere in this Annual Report on Form 10-K.
We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel or hire additional personnel, our ability to develop and successfully market our business could be harmed.
We believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial, technical, finance, creative, and sales and marketing personnel. Moreover, we believe that our future success is highly dependent on the contributions of our executive officers. All of our officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. In addition, the loss of any key employees or the inability to attract or retain qualified personnel could delay the development and introduction of, and harm our ability to sell, our software solutions and harm the market’s perception of us. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing sales, operational, and managerial requirements, or may be required to pay increased compensation in order to do so. Furthermore, although we believe a remote-first work model will help us attract and retain talent across a broad geographic base, a remote work environment could, among other things, negatively impact company culture, employee morale, and productivity, inhibit our ability to hire and train new employees, and impede our ability to support customers at the levels they expect. If we are unable to attract and retain the qualified personnel we need to succeed, our business will suffer.
Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees. Certain of our employees have become, or will soon become, vested in a substantial amount of stock options or restricted stock units. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the vested options, or if the exercise prices of the options that they hold are significantly above the market price of our common stock. In addition, job candidates and existing employees often consider the actual and potential value of the equity awards they receive as part of their overall compensation. If the perceived value or future value of our stock declines, our ability to attract and retain highly skilled employees may be adversely affected. If we are unable to retain or find a suitable replacement for our named executive officers or other key employees, our business will be harmed.
Growth may place significant demands on our management and our infrastructure.
Our growth has placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. As our operations grow in size, scope, and complexity, we will need to improve and upgrade our systems and infrastructure to offer an increasing number of customers enhanced software solutions, features, and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational, and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. To support our growth, we must also continue to improve our management resources and our operational and financial controls and systems, and these improvements may increase our expenses more than anticipated and result in a more complex business. Continued growth could also strain our ability to maintain reliable service levels for our customers and recruit, train, and retain highly skilled personnel.
Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business would be harmed.
We depend on data centers operated by third parties and third-party cloud hosting providers, and any disruption in the operation of these facilities or access to the Internet could adversely affect our business.
While the majority of our customers have been migrated to cloud-based solutions like Microsoft Azure and Amazon Web Services, we continue to serve a small subset of our customers from two third-party data center hosting facilities located in Lone Mountain, Nevada and Atlanta, Georgia. We do not control the operation of these data centers, and the third-party owners and operators of these current and future facilities do not guarantee that our customers’ access to our software solutions will be uninterrupted, error-free, or secure. Problems associated with these data centers could adversely affect the experience of our customers. Any disruptions or other operational performance problems with these data centers including without limitation, interruptions in service from software or hardware failures, virus or cybersecurity attacks, terrorism, or natural disasters, could result in material interruptions in our services, adversely affect our reputation and results of operations, and subject us to liability.
We also depend on third-party cloud-hosting providers and continuous and uninterrupted access to the Internet through third-party bandwidth providers to operate our business. As we continue to expand the number of our customers and available solutions, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of data centers, Internet service providers, or other third-party service providers to meet our capacity requirements could result in interruptions or delays in access to our solutions or impede our ability to grow our business and scale our operations. If our third-party infrastructure service agreements are terminated, if there is a service lapse, interruption of Internet service provider connectivity, or damage to data centers, or if we experience a service loss or disruption of one or more of our cloud-hosting or bandwidth providers for any reason, such as viruses, denial of service, ransomware, cybersecurity attacks or other attacks on their systems, human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes, or other catastrophic events, we could experience disruption in our ability to offer our software solutions and adverse perception of our software solutions’ reliability. We could also be required to retain the services of replacement providers, which could cause interruptions in access to our solutions as well as delays and additional expense in arranging new facilities and services and could also increase our operating costs and harm our business and reputation. Additionally, any need to change cloud-hosting service providers would require a significant amount of time and effort by our information technology department.
We have a significant portion of our product development operations contracted to unrelated third parties in India, which poses risks.
We have used, and intend to continue to use, unrelated third parties to provide us with technology development services, through individuals based in India. We have increased the amount of our product development work performed by contractors in India to expand our access to additional resources so we can meet the needs of our increased development efforts. However, we may not achieve the cost savings and other benefits we anticipate from these programs, and we may not be able to find sufficient numbers of developers with the necessary skill sets in India to meet our needs. While our experience to date with our India-based contractors has been positive, there is no assurance that this will continue. Specifically, there are a number of risks associated with this activity, including, but not limited to, the following:
•communications and information flow may be less efficient and accurate as a consequence of the time and distance differences between our primary development organization and the foreign-based activities, resulting in delays in development or errors in the software developed;
•in addition to the risk of misappropriation of intellectual property from departing personnel, there is a general risk of the potential for misappropriation of our intellectual property that might not be readily discoverable;
•the ability to obtain fulsome rights to intellectual property arising from the work performed by India-based individuals may be more difficult than it is with respect to intellectual property arising from work performed for us by our U.S.-based employees;
•the quality of the development efforts undertaken offshore may not meet our requirements, including due to experiential differences, resulting in potential product errors and/or delays;
•currency exchange rates could fluctuate and adversely impact the cost advantages intended from maintaining these relationships; and
•as would be the case with any of our third-party developers, if those based in India were to leave their employment or if the third-party development services agreement with us were terminated, we would lose some short-term development capacity, and while we believe we would still be able to continue maintaining and improving all of our service offerings, we would need to expend resources and management time to on-board additional development resources.
In addition, as a result of the foregoing arrangements, we have a heightened risk exposure to changes in the economic, security, and political conditions of India. Economic and political instability, military actions, and other unforeseen occurrences in India could impair our ability to develop and introduce new software applications and functionality in a timely manner, which could put our products at a competitive disadvantage whereby we lose existing customers and/or fail to attract new customers.
Risks Related to Legal and Regulatory Matters
Privacy, information security, and data protection concerns, data collection and transfer restrictions, and related domestic regulations may limit the use and adoption of our software solutions and adversely affect our business and results of operations.
The regulatory framework governing privacy, information security, data protection, and the collection, processing, storage, and use of certain information, particularly financial and other personally identifiable information, is rapidly evolving. We expect that there will continue to be new proposed and adopted laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States. At the federal level, failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act (the FTCA), 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities.
In addition, certain state laws govern the privacy and security of personal information. For example, California enacted the California Consumer Privacy Act, or CCPA, which went into effect in January 2020 and established a comprehensive privacy framework for covered businesses by, among other things, creating an expanded definition of personal information, requiring companies covered by the legislation to provide certain disclosures to California residents and affording such individuals new data privacy rights, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. Additionally, the California Privacy Rights Act, or CPRA, which went into effect January 1, 2023, amended and expanded the CCPA by imposing additional obligations on companies covered by the legislation. The CPRA significantly modified the CCPA, including by eliminating the exception for personal information processed in a business to business and/or human resources capacity, expanding California residents’ rights with respect to certain sensitive personal information and establishing the California Privacy Protection Agency to enforce the legislation. The CCPA has required us to modify and augment our practices and policies and we may incur substantial costs and expenses in an effort to comply or respond to further changes to laws or regulations.
Similar laws have been passed in numerous other states, and a number of other states have proposed new privacy laws, some of which are similar to the above discussed recently passed laws. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and could result in increased compliance costs and/or changes in business practices and policies. The existence of comprehensive privacy laws in different states in the country would make our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for noncompliance. In addition, laws in all 50 U.S. states require businesses to provide notice to individuals if certain categories of their personal information are disclosed as a result of a qualifying data breach. Further, other states have proposed and/or passed legislation that regulates the privacy and/or security of certain specific types of information. For example, a small number of states have passed laws that regulate biometric data specifically. These various privacy and security laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products. State laws are changing rapidly and there is discussion in the U.S. Congress of a comprehensive federal data privacy law to which we could become subject to, if enacted.
We cannot yet fully determine the impact that these or future laws, rules, and regulations may have on our business or operations. Any such laws, rules, and regulations may be inconsistent among different jurisdictions, subject to new or differing interpretations, or conflict with our current or future practices. Additionally, we may be bound by contractual requirements applicable to our collection, use, processing, and disclosure of various types of information, including financial and PII, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters that may further change as laws, rules, and regulations evolve. Any failure or perceived failure by us, our third-party service providers, or any other third parties with which we do business, to comply with these laws, rules, and regulations, or with other obligations to which we or such third parties are or may become subject, may materially and adversely affect our business and results of operations, and result in reputational harm, governmental investigations and enforcement actions, litigation, claims, fines and penalties, or adverse publicity. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Additionally, if in the future we seek to sell our solutions outside of the United States, we would face similar or potentially more stringent laws and regulations relating to personal privacy, information security, and data protection and we cannot be certain we would be able to adequately address these laws and regulations as part of any international expansion without incurring substantial costs and expenses to comply.
Our customers are highly regulated and subject to a number of challenges and risks. Our failure to comply with laws and regulations applicable to us as a technology provider to financial institutions could adversely affect our business and results of operations, increase costs, and impose constraints on the way we conduct our business.
Our current and prospective customers are highly regulated and are generally required to comply with stringent regulations in connection with performing business functions that our software solutions address. As a provider of technology to financial institutions, and as a result of obligations under some of our customer contracts, we are required to comply with certain provisions of the Gramm-Leach-Bliley Act, or GLBA, and other state laws related to the privacy and security of certain consumer information, in addition to other contractual obligations that relate to our customers’ obligations under the GLBA and other laws and regulations to which they are subject, including, but not limited to, state privacy laws and regulations. We also may be subject to other laws and regulations, including those relating to privacy and data security, due to the software solutions we provide to financial institutions.
Matters subject to review and examination by federal and state regulatory agencies and external auditors include our internal information technology controls in connection with our performance of data processing services, the agreements giving rise to those processing activities, and the design of our software solutions. Any inability to satisfy these examinations and maintain compliance with applicable regulations could adversely affect our ability to conduct our business, including attracting and maintaining customers. If we must make changes to our internal processes and software solutions as a result of these regulations, we could be required to invest substantial additional time and funds, diverting time and resources from other initiatives to remedy any identified deficiency.
Our indirect, wholly-owned subsidiary, Professional Credit Reporting, Inc., functions as a consumer reporting agency and, as a result, is subject to rules and regulations applicable to consumer reporting agencies, such as the Fair Credit Reporting Act, or FCRA. In addition, with our acquisition of the assets of TazWorks and MeridianLink Wholesale Data, LLC, doing business as Trade House Data, we may have additional exposure to FCRA as a wholesale data furnisher of certain background screening pointer data. Other than these exposures to FCRA, we have adopted the position that we are not otherwise subject directly to the FCRA in our position as a technology provider to financial institutions and CRAs. The scope of the FCRA is currently under regulatory review and may be challenged by regulatory authorities or others, however, which could result in regulatory investigations and other proceedings, claims, and other liability, and which could require us to redesign our solutions and otherwise substantially modify our operations, processes, and solutions. This could require dedication of substantial funds and other resources, and time of management and technical personnel, which could be highly disruptive to our operations. This could adversely affect our business and results of operations. The CRA industry is facing aggressive litigation efforts from plaintiffs’ attorneys against CRAs requiring substantial resources from us in response to subpoenas and additional technical software reporting requests, and, more recently, direct claims against us. While we maintain that we are not a CRA, these efforts could affect us more significantly if additional customers are impacted, as MeridianLink is brought into such claims, or if MeridianLink is otherwise implicated in such litigation.
The evolving, complex, and often unpredictable regulatory environment in which our customers operate could result in our failure to provide compliant software solutions, which could result in customers not purchasing our software solutions or terminating their contracts with us or the imposition of fines or other liabilities for which we may be responsible. In addition, as a service provider to financial institutions, we may be subject to direct regulation and examination by federal and/or state agencies, and such agencies may attempt to further regulate our activities in the future which could adversely affect our business and results of operations.
Any future litigation against us could damage our reputation and be costly and time-consuming to defend.
We have been in the past and may be, at any point, subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes, third party claims regarding our customer’s use of our software, or employment claims made by current or former employees. In other instances, our customers become involved in litigation where we are required to provide information pursuant to a court order, subpoena, or customer request or where we may be named as co-defendants. From time to time, we also may initiate litigation to enforce our rights, including with respect to payments that we are owed. Litigation could result in reputational damage and substantial costs and may divert management’s attention and resources, any of which may adversely impact our business, overall financial condition, and results of operations and affect the value of our common stock. While we maintain insurance coverage for certain types of claims, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise. We are not currently aware of any material pending or threatened litigation against us but can make no assurances the same will continue to be true in the future. During the year ended December 31, 2024, we paid $1.5 million related to settlements of class action litigation claims and $0.4 million in third-party legal fees directly related to the settlements.
If we are unable to protect our intellectual property, our business could be adversely affected.
We rely on a combination of copyrights, trademarks, service marks, patents and trade secret laws, confidentiality obligations, and other contractual restrictions to establish and protect our intellectual property and other proprietary rights. Despite our efforts, these protections may be limited and may not adequately permit us to gain or keep any competitive advantage. Unauthorized third parties may try to copy or reverse engineer our solutions, technology, systems, methods, processes, or proprietary information. A third party may develop software solutions, adopt trade names or domain names, or acquire other intellectual property and proprietary rights similar to ours, thus diluting or diminishing the value of our intellectual property, proprietary rights, and overall brand. Our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes could be limited by our agreements with third parties. The use of certain AI technologies can also give rise to intellectual property risks, including by disclosing or otherwise compromising our confidential or proprietary intellectual property, or by undermining our ability to assert or defend ownership rights in intellectual property created with the assistance of AI tools. Our patents may be invalidated or circumvented. A patent application may not be issued with the claim scope we seek, if at all. In addition, the laws of some countries do not provide the same level of intellectual property protection as U.S. laws and courts.
We may be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. We may also allow certain of our registered intellectual property rights, or our pending applications or registrations for intellectual property rights, to lapse or to become abandoned if we determine that obtaining or maintaining the applicable registered intellectual property rights is not worthwhile. Our inability to protect our intellectual property against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay sales or the implementation of our software solutions, impair the functionality of our software solutions, delay introductions of new software solutions, result in our substituting less-advanced or more-costly technologies into our software solutions, or harm our reputation. In addition, should any of our protections fail, we may be required to license additional intellectual property from third parties to develop and market new software solutions, and we cannot ensure that we could license that intellectual property on commercially reasonable terms or at all.
We use open source software in our solutions, which could subject us to litigation or other actions, or otherwise negatively affect our ability to sell our solutions.
Our solutions incorporate software modules licensed to us by third-party authors under “open source” licenses. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification, or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability and unknown vulnerabilities of such software may make our solutions more susceptible to compromise. The terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that imposes unanticipated conditions or restrictions on our ability to provide or distribute our solutions.
We could become subject to lawsuits by parties claiming ownership of what we believe to be open source software. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties, to re-engineer our solutions, to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, financial condition, and results of operations. Although we monitor our use of open source software to avoid subjecting our solutions to unintended conditions, such use may require us to take remedial action that may divert resources away from our development efforts and could materially adversely affect our business.
Lawsuits by third parties against us or our customers for alleged infringement of the third parties’ proprietary rights or for other intellectual property-related claims relating to our solutions or business could result in significant expenses and harm our operating results.
Our industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual property and proprietary rights, along with frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have been, and, from time to time, expect to be involved in disputes related to patent and other intellectual property rights of third parties. To date, none of these disputes have resulted in material liabilities. Our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them. There can be no assurances that any existing limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management, result in material liabilities, and have an adverse effect on our business, operating results, and financial condition.
From time to time, we have received, and may continue to receive, threatening letters or notices or, in the future, may be the subject of claims that our software solutions and underlying technology infringe or otherwise violate the intellectual property rights of others, and we may be found to be infringing upon or otherwise violating such rights. We also face, from time to time, trade name or trademark or service mark infringement claims brought by owners of other registered or unregistered trademarks or service marks, including trademarks or service marks that may incorporate variations of our brand names. In addition, the risk of patent litigation has been amplified by the increase in the number of patent holding companies or other adverse patent owners that have no relevant product revenues, and therefore, our existing patent and any patents we may obtain in the future may provide little or no deterrence as we would not be able to assert them against such entities or individuals. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us or our customers whom we indemnify, could subject our technologies to injunction preventing us from accessing such third-party intellectual property rights, require that we pay substantial damages or ongoing royalty payments, prevent us from offering our software solutions, or require that we comply with other unfavorable terms. Even if the claims do not result in litigation or are resolved in our favor, these claims and the time and resources necessary to resolve them could divert the resources of our management and harm our business and operating results. Any claims related to our intellectual property or customer confusion related to our solutions could damage our reputation and adversely affect our growth prospects.
Any use of our solutions by our customers in violation of legal or regulatory requirements could damage our reputation and subject us to additional liability.
If our customers or their clients use our solutions in violation of regulatory requirements and applicable laws, we could suffer damage to our reputation and could become subject to claims in connection with their use of our solutions. We rely on our customers’ contractual obligations that their use and their clients’ use of our solutions will comply with applicable laws. However, we do not audit our customers or their clients to confirm compliance. Even if claims asserted against us do not result in liability, we may incur costs in investigating and defending against such claims. If we are found liable in connection with our customers’ or their clients’ activities, we could incur liabilities and be required to redesign our solutions or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability.
The financial services industry is heavily regulated and changes in current legislation or new legislation could adversely affect our business.
The financial services industry in the United States, and, in particular, the consumer lending and mortgage industries, are heavily regulated. Our software solutions are designed to assist our customers with their compliance of consumer protection laws and institutionally mandated compliance policies and, therefore, must be updated to incorporate changes to such laws and policies. For example, we made certain changes to our software solutions to assist our customers with compliance with modifications to the Truth in Lending Act. Federal and state governments and agencies could enact legislation or other policies that could negatively impact the business of our customers and our product partners. Any changes to existing laws or regulations or adoption of new laws or regulations that increase restrictions on the consumer lending and mortgage industries may decrease usage and volumes transacted with our solutions or otherwise limit the ability of our customers and our product partners to operate their businesses, resulting in decreased usage of our software solutions. In addition, changes to existing laws or regulations, the effectiveness or existence of certain regulatory agencies or changes in governmental policies, including changes in connection with the new presidential administration, may lead to changes in the usage and volumes transacted with our solutions, increase our costs in order to adapt our solutions to such changes, and any impact is hard to predict. Updates that we have undertaken in the past have caused us to incur significant expense, and future updates to address such legal and regulatory developments will likely similarly cause us to incur significant expense.
While our customers are ultimately responsible for compliance with the laws and regulations that apply to the consumer lending and mortgage industries, a failure to design or to appropriately update our software solutions to reflect and comply with changes to existing laws or regulations or with new laws or regulations may contribute to violations by our customers of such laws and regulations. Any such violations could result in our customers to discontinue using our software solutions and cause us reputational harm, which would negatively impact our financial position and results of operations.
Failure to comply with anti-bribery, anti-corruption, and similar laws, could subject us to penalties and other adverse consequences.
Failure to comply with anti-bribery, anti-corruption, anti-money laundering, and similar laws could subject us to penalties and other adverse consequences. We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other federal, state, and local laws that address anti-bribery, anti-corruption, and anti-money laundering. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
While we have policies and procedures to address compliance with such laws, we cannot ensure that none of our employees, agents, representatives, business partners, or third-party intermediaries will take actions in violation of our policies and applicable laws, for which we may be ultimately held responsible.
Any allegations or violation of the FCPA or other applicable anti-bribery or anti-corruption laws or anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. In addition, the U.S. government may seek to hold us liable for successor liability for FCPA violations committed by companies in which we invest or that we acquire. As a general matter, investigations and enforcement actions could harm our reputation, business, results of operations, and financial condition.
If one or more U.S. states or local jurisdictions successfully assert that we should have collected, or in the future should collect, additional sales or use taxes on our fees, we could be subject to additional liability with respect to past or future sales, and the results of our operations could be adversely affected.
An increasing number of states have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. We do not collect state and local sales and use taxes in all jurisdictions in which our customers are located, based on our belief that such taxes are not applicable to us. Jurisdictions in which we do not collect sales and use taxes may assert that such taxes are applicable to us and require us to calculate, collect, and remit taxes, interest, and penalties, as well as collect such taxes in the future. In addition, one or more states, the federal government, or other countries may seek to impose additional reporting, record-keeping, or indirect tax collection obligations on businesses like ours that offer subscription services. State or local governments may require us to collect and remit sales and use taxes where we have not collected and remitted sales and use taxes that occurred in prior tax years. The imposition by state or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, subject us to additional costs, put us at a competitive disadvantage if similar obligations are not imposed on our competitors, and decrease our future sales, which could have an adverse effect on our business, financial condition, and results of operations.
Risks Related to Finance and Accounting
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our revenues, gross margin, profitability, and cash flow may vary significantly in the future and, accordingly, period-to-period comparisons of our results of operations may not be meaningful. Thus, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and may not fully or accurately reflect the underlying performance of our business. For example, while subscriptions with our customers often include multi-year terms that typically range from three to five years, a majority of our revenues from these subscriptions comes from usage or volume-based fees, such as application fees and per inquiry fees, as opposed to annual or monthly base fees. As such, if our customers terminate their agreements with us prior to their scheduled term, we may only recover a portion of our contractual base fees, and not any usage or volume-based fees. Fluctuation in quarterly results may negatively impact the value of our common stock. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
•general economic, political, industry, and market conditions (particularly those affecting financial institutions), including fears of global economic downturn or recession, significant changes in laws, regulations, or governmental policies that affect our customers, inflation and corresponding central bank countermeasures, and elevated interest rates and their resulting effect on the mortgage market;
•our ability to retain current customers or attract new customers;
•the overall usage, volume, and type of transactions handled or processed using our software solutions, which may vary based on external factors such as macroeconomic conditions and seasonality;
•the activation, delay in activation, or cancellation by customers;
•the timing of recognition of professional services revenues;
•the amount and timing of operating expenses, particularly increased expenses in connection with elevated inflation, related to the maintenance and expansion of our business, operations, and infrastructure;
•the timing and amounts of our stock repurchases;
•consolidations between or mergers or acquisitions of our customers, to the extent the combined entity or acquirer elects not to continue using our solutions or reduces subscriptions to it;
•customer renewal, expansion, and retention rates;
•increases or decreases in usage or pricing changes upon renewals of customer contracts;
•network outages or security breaches;
•changes in our pricing policies or those of our competitors;
•seasonal variations in sales of our software solutions, which have historically been highest in the third quarter of our fiscal year;
•the timing and success of introductions of new solutions or features and functionality by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic partners;
•unexpected expenses such as those related to litigation and other disputes; and
•the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill or other intangibles from acquired companies.
Our forecasts, including forecasts related to acquired entities, are subject to significant risks, assumptions, estimates, and uncertainties, which may cause our revenues, market share, expenses, and profitability to differ materially from our expectations. For acquired entities, this could lead to an impairment charge.
Our forecasts, as well as our internal estimates and research, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. We operate in rapidly evolving, fragmented, and competitive industries, which make our results of operations difficult to predict. Additionally, we have a limited operating history at the current scale of our business, which makes it difficult to forecast our future results.
Market conditions may change quickly and unpredictably, which could cause the assumptions and data inputs for our forecasts to no longer be representative of the most recent market conditions. It may not be possible to update existing forecasts expeditiously to properly account for the most recently available data and events, or management may be required to make judgments regarding adjustments or overrides to our forecasts, which judgments are subject to further uncertainty. Additionally, we have a limited operating history at the current scale of our business, which makes it difficult to forecast our future results. Moreover, forecasts based on historical data sets might not be accurate predictors of future outcomes, and their ability to appropriately predict future outcomes may degrade over time.
If the forecasts of market growth, anticipated spending, or predictions regarding market size prove to be inaccurate, our business and growth prospects could be adversely affected. Even if all or some of the forecasted growth occurs, our business may not grow at a similar rate, or at all. If actual results differ from our estimates, analysts may react negatively, and our stock price could be materially impacted. In the case of acquired entities, if our forecasts of market growth, anticipated spending, or predictions regarding market size prove to be inaccurate, an impairment charge could materialize.
Because we recognize subscription fee revenues over the term of the contract, downturns or upturns in our business may not be fully reflected in our results of operations until future periods.
We generally recognize revenues from subscription fees ratably over the terms of our customer contracts, which typically have an initial term of three years. As such, a portion of the subscription fee revenues we report each quarter are derived from the recognition of deferred revenues relating to subscriptions activated in previous quarters. Consequently, a reduction in customer subscriptions in any single quarter may only have a small impact on our revenues for that quarter. However, such a decline will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales or market acceptance of our software solutions, and changes to our attrition rate, may not be fully reflected in our results of operations until future periods.
If our goodwill and other intangibles become impaired, we may be required to record a significant charge to earnings.
We have a significant amount of goodwill and other intangibles. Our goodwill and other intangible asset balances as of December 31, 2024, were approximately $610.1 million and $201.5 million, respectively. We test goodwill at least annually, as of October 1, or more frequently if circumstances indicate that goodwill may not be recoverable. Testing involves estimates and judgments by management. Such assets are considered to be impaired when the carrying value of an intangible asset exceeds its estimated fair value. We may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined. While no impairment has been recorded in the consolidated financial statements included in this Annual Report on Form 10-K, any future impairment of a significant portion of our goodwill could materially adversely affect our financial condition and results of operations.
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income.
We recognize deferred tax assets when it is considered more likely than not that the tax benefit will be realized; otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize the deferred tax assets could be impacted. Additionally, future changes in tax laws could limit our ability to obtain the future tax benefits represented by our deferred tax assets. After analyzing all available evidence, we have determined that it is more likely that we would not be able to utilize all of our deferred tax assets prior to the expiration of such assets and therefore we have recorded a partial valuation allowance on our deferred tax assets as of December 31, 2023, and December 31, 2024. Our valuation allowance was $34.7 million and $29.4 million as of December 31, 2024 and December 31, 2023, respectively. The amount of the deferred tax asset considered realizable, and therefore the amount of the valuation allowance recorded against our deferred tax assets, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
Our ability to use our net operating loss carryforwards and other tax attributes may be limited.
We may be unable to fully use our net operating loss, or NOL, carryforwards, if at all. Under Section 382 and corresponding provisions of state law, if a corporation undergoes an “ownership change,” generally defined under Section 382 and applicable U.S. Treasury regulations as a greater than 50% change, by value, in its equity ownership over a rolling three-year period, the corporation's ability to use its pre-change NOLs and other applicable pre-change tax attributes, such as research and development tax credits, to offset its post-change income may be limited. We completed an analysis under Section 382 through September 30, 2024, confirming no ownership changes have occurred since our initial public offering in 2021. If the Company undergoes an ownership change and if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the U.S. state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
We may, however, experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical NOL and tax credit carryforwards is materially limited, it may result in increased future tax liability to us and could adversely affect our operating results and financial condition.
Our debt agreements contain restrictions that limit our flexibility.
Our debt agreements contain, and any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our subsidiaries’ ability, among other things, to:
•incur additional indebtedness;
•incur liens;
•engage in mergers, consolidations, liquidations, or dissolution;
•pay dividends and distributions on, or redeem, repurchase, or retire our capital stock;
•make investments, acquisitions, loans, or advances;
•create negative pledge or restrictions on the payment of dividends or payment of other amounts owed from subsidiaries;
•sell, transfer, or otherwise dispose of assets, including capital stock of subsidiaries;
•make prepayments of material debt that is subordinated with respect to right of payment or liens, or is unsecured;
•engage in certain transactions with affiliates;
•modify certain documents governing material debt that is subordinated with respect to right of payment; and
•change our lines of business.
As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
We are highly leveraged and have substantial indebtedness, which reduces our capability to withstand adverse developments or business conditions.
We have incurred substantial amounts of indebtedness to finance our business operations, including our growth initiatives. Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on, or other amounts due in respect of our indebtedness. Additionally, actual or anticipated downgrades to our credit rating, including any announcement that our credit rating is under review, could impact our ability to borrow money and increase future lending costs.
Our overall leverage and the terms of our financing arrangements could also:
•make it more difficult for us to satisfy obligations under our outstanding indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under any of the agreements governing our indebtedness;
•limit our ability to obtain additional financing in the future for working capital, capital expenditures, or acquisitions;
•limit our ability to refinance our indebtedness on terms acceptable to us or at all;
•delay investments, restrict us from making strategic acquisitions, or cause us to make non-strategic divestitures;
•require us to dedicate a significant portion of our cash flow from operations to paying the principal of and interest on our indebtedness, thereby limiting the availability of our cash flow to fund future capital expenditures, working capital, and other corporate purposes;
•increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage or require us to dispose of assets to raise funds if needed for working capital;
•limit our flexibility in planning for, or reacting to, changes in our business and our industry;
•place us at a competitive disadvantage compared with competitors that have a less significant debt burden; and
•expose us to increased market interest rates resulting in our variable-rate debt having higher debt service requirements.
We may not be able to secure sufficient additional financing on favorable terms, or at all, to meet our future capital needs.
We may require additional capital in the future to pursue business opportunities or acquisitions or respond to challenges and unforeseen circumstances. We may also decide to engage in equity or debt financings or enter into additional credit facilities for other reasons. We may not be able to secure additional debt or equity financing in a timely manner, on favorable terms, or at all. Capital market conditions, including the impact of inflation, interest rates, and economic stability could significantly impact our cost of capital as compared to prior periods should we seek additional funding. Moreover, global capital markets have undergone periods of significant volatility and uncertainty in the past, and there can be no assurance that such financing alternatives will be available to us on favorable terms or at all, should we determine it necessary or advisable to seek additional capital.
We have identified a material weakness in our internal control over financial reporting for the fiscal year ended December 31, 2024. If we are unable to maintain effective internal controls over financial reporting and disclosure controls and procedures, we may be unable to accurately report our financial results, or report them within the time frames required.
Subject to applicable reporting requirement exemptions we take advantage of as an emerging growth company, we are required to comply with the SEC rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act of 2002, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Effective internal controls over financial reporting are necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to prevent or detect misstatements in the financial statements. We are also required to report any material weaknesses in the design or operating effectiveness of our internal controls. A material weakness is a significant deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
In connection with the preparation and audit of our financial statements for the year ended December 31, 2023, our management identified multiple control deficiencies that aggregated to a material weakness in our internal controls over financial reporting related to the design and operating effectiveness of controls over revenue as of December 31, 2023. This was primarily caused by insufficient controls over the set-up of customer contracts for billing and maintaining complete contract support that were not designed or operating effectively. We can confirm that there has been no restatement of prior period financial statements and no change to our previously released financial results as a result of the identified material weakness.
During the year ended December 31, 2024, we have implemented process improvements throughout our revenue cycle work stream and have designed and implemented key controls to address our highest risk areas in order to work towards remediating the material weakness noted above. Throughout 2024, we have assessed our remediation progress and while we have made significant progress, we continue to make adjustments to further strengthen their efficacy, and have not yet determined that the material weakness has been remediated. We will not be able to fully remediate the material weakness until our remediation efforts have been completed and the controls have been operating effectively for a sufficient period of time.
Furthermore, while we have made progress in enhancing our controls and systems since our initial public offering, we will need to continue to invest additional time, effort, and financial resources to meet our ongoing public reporting obligations. We have worked with both internal and external subject matter experts to help identify and address the areas requiring process improvement and additional controls. Nonetheless, the rapid growth and increased complexity of our business will continue to require a high level of scrutiny for our finance and accounting functions, which may result in additional future control deficiencies, significant deficiencies and/or material weaknesses. We may need to hire additional personnel with appropriate experience, seniority and skill levels to remediate the control deficiencies we have identified or to help identify, manage and control other potential deficiencies in our internal controls in the future.
While we believe that the measures described above will contribute to the remediation of the material weakness we have identified, we cannot, however, provide any assurance that our remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. We are committed to continuing to improve our internal control processes and will continue to review, optimize, and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or we may modify certain of the remediation measures described above. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Despite these remediation efforts, we cannot at this time estimate how long it will take to complete the remediation processes over the impacted revenue controls, nor can we assure you that the measures we have taken to date and may take in the future, will be sufficient to remediate the control deficiencies that led to the material weakness in internal control over financial reporting or that it will prevent or avoid potential future material weaknesses.
If we are not able to maintain effective internal control over financial reporting and disclosure controls and procedures, or if additional material weaknesses are discovered in past or future periods, a risk that is significantly increased in light of the complexity of our business, we may be unable to accurately and timely report our financial position, results of operations, cash flows or key operating metrics, which could result in late filings of the annual and quarterly reports under the Exchange Act, non-compliance with NYSE listing requirements, restatements of financial statements or other corrective disclosures, an inability to access capital or commercial lending markets, loss of investor confidence in our financial reporting, potential exposure to regulatory investigations and penalties, defaults under our secured revolving credit facility and other agreements, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.
Amendments to existing, or enactment of new unfavorable, tax laws, rules, or regulations could adversely affect our financial position.
Changes in applicable U.S. federal, state, and local income taxation laws, rules, or regulations, or their interpretation and application, which changes may have possible retroactive effect, could adversely affect our tax expense and profitability. In recent years, many such changes have been made, and changes are likely to continue to occur in the future. For example, many provisions of the Tax Cuts and Jobs Act of 2017, or TCJA, or the Inflation Reduction Act of 2022, or IRA, still require guidance through the issuance or finalization of regulations by the U.S. Department of the Treasury in order to fully assess their effects. There may be substantial delays before such regulations are promulgated or finalized as well as proposed technical corrections or other legislation, resulting in uncertainty as to their ultimate effects. Under the TCJA, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement increases our deferred tax assets and may have an impact on future cash tax liabilities. The IRA includes a 15% corporate alternative minimum tax for companies with modified United States generally accepted accounting principles, or GAAP, net income in excess of $1 billion, a 1% excise tax on certain stock repurchases, and numerous environmental and green energy tax credits, each of which still require guidance and finalization of regulations by the U.S. Department of the Treasury. Currently, we are not subject to the corporate alternative minimum tax, have determined the 1% excise tax on certain stock repurchases to be immaterial to our business or stock repurchase program, and are evaluating the applicability and impact of the IRA’s additional tax provisions. Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have an adverse effect on our financial position. We urge investors to consult with their legal and tax advisors regarding the implications of potential changes in tax laws on an investment in our common stock.
Risks Related to Potential Conflicts of Interests and Related Parties
Thoma Bravo has a significant influence over matters requiring stockholder approval, which may have the effect of delaying or preventing changes of control, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest.
As of March 6, 2025, Thoma Bravo and its related entities beneficially own, in the aggregate, approximately 37.8% of our issued and outstanding shares of common stock. As a result, Thoma Bravo could exert significant influence over our operations and business strategy as well as matters requiring stockholder approval. These matters may include:
•the composition of our board of directors, which has the authority to direct our business and to appoint and remove our officers;
•approving or rejecting a merger, consolidation, or other business combination;
•raising future capital; and
•amending our charter and bylaws, which govern the rights attached to our common stock.
Additionally, pursuant to our certificate of incorporation and bylaws, for so long as Thoma Bravo beneficially owns at least (i) 30% of our outstanding shares of common stock, Thoma Bravo will have the right to nominate a majority of our board of directors and to designate the size of our board as well as the chair of our board of directors and of each committee of our board of directors (provided that each such nomination or designation shall comply with the applicable rules of the NYSE); (ii) 20% (but less than 30%) of our outstanding shares of common stock, Thoma Bravo will have the right to nominate a number of directors to our board of directors equal to the lowest whole number that is greater than 30% of the total number of directors (but in no event fewer than two directors); (iii) 10% (but less than 20%) of our outstanding shares of common stock, Thoma Bravo will have the right to nominate a number of directors to our board of directors equal to the lowest whole number that is greater than 20% of the total number of directors (but in no event fewer than one director); and (iv) 5% (but less than 10%) of our outstanding shares of common stock, Thoma Bravo will have the right to nominate one director to our board of directors. Accordingly, for so long as Thoma Bravo beneficially owns at least 30% of our outstanding shares of common stock, we expect the directors designated by Thoma Bravo to constitute a majority of each committee of our board of directors, other than the audit committee, and to chair each of the committees, other than the audit committee.
This concentration of ownership of our common stock could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs, or other purchases of our common stock that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock, and could, in turn, adversely affect our share price.
Thoma Bravo may pursue corporate opportunities independent of us that could present conflicts with our and our stockholders’ interests.
Thoma Bravo is in the business of making or advising on investments in companies and holds (and may from time to time in the future acquire) interests in or provides advice to businesses that may directly or indirectly compete with our business or be suppliers or customers of ours. Thoma Bravo may also pursue acquisitions that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.
Our charter provides that none of our officers or directors who are also an officer, director, employee, partner, managing director, principal, independent contractor, or other affiliate of Thoma Bravo will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual pursues or acquires a corporate opportunity for its own account or the account of an affiliate, as applicable, instead of us, directs a corporate opportunity to any other person, instead of us, or does not communicate information regarding a corporate opportunity to us. Such provision will apply for so long as Thoma Bravo holds any of our securities.
Risks Related to Our Common Stock and Governance Structure
The trading price of our common stock could be volatile, and you could lose all or part of your investment.
The trading price of our common stock may fluctuate substantially in response to numerous factors, many of which may be beyond our control and may not be related to our operating performance, including:
•changes in governmental regulations, laws, or policy and monetary policy by the Federal Reserve, including recent increases in interest rates and plans for future increases;
•general economic conditions and trends, including changes in interest rates and consumer borrowing habits;
•announcements of new products or technologies, commercial relationships, acquisitions, or other events by us or our competitors;
•changes in how customers perceive the benefits of software solutions;
•shifts in the mix of billings and revenues attributable to subscription fees, service fees, and product partner fees, from quarter to quarter;
•departures of key personnel;
•price and volume fluctuations in the overall stock market from time to time;
•fluctuations in the trading volume of our shares or the size of our public float, including by stock repurchase;
•sales of large blocks of our common stock, including by key personnel or the Thoma Bravo Funds;
•actual or anticipated changes or fluctuations in our operating results;
•unfavorable securities analysts’ research and reports published about us, our business, our market, or our competitors;
•whether our operating results meet the expectations of securities analysts or investors, or changes in actual or future expectations of investors or securities analysts;
•fluctuations in our quarterly or annual earnings results or those of other companies in our industry;
•litigation involving us, our industry, or both;
•regulatory developments;
•actual or perceived security compromises or breaches;
•major catastrophic events in domestic and foreign markets, including, for instance, the ongoing military conflict between Ukraine and Russia or conflict escalation in the Middle East; and
•the other factors described in these “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
These fluctuations may limit or prevent investors from readily selling their shares of common stock, could cause investors to lose all or part of their investment in our common stock, and may otherwise negatively affect the liquidity of our common stock.
In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results, or financial condition. In addition, the trading prices of technology stocks have historically experienced high levels of volatility. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has often been brought against that company.
For as long as we are an emerging growth company, we will not be required to comply with certain requirements that apply to other public companies.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we are an emerging growth company, unlike other public companies, we will not be required to, among other things: (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of larger public companies; or (iv) hold nonbinding advisory votes on executive compensation and any golden parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for adopting new or revised financial accounting standards. We intend to take advantage of the longer phase-in periods for the adoption of new or revised financial accounting standards permitted under the JOBS Act until we are no longer an emerging growth company. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to the JOBS Act.
We will remain an emerging growth company up until December 31, 2026, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.
To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Any issuance or sale of our capital stock may adversely affect the market price of our common stock and may dilute existing stockholders.
We may issue additional capital stock in the future that will result in dilution to all other stockholders. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. We plan to continue to issue common stock pursuant to our 2021 Stock Option and Incentive Plan, 2021 Employee Stock Purchase Plan, or other equity incentive plans that we may adopt in the future. Any such sales or issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.
In addition, our charter authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations, and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock. Designation and issuance of one or more classes or series of preferred stock could adversely affect the voting power or value of our common stock.
We do not intend to pay dividends on our common stock and, consequently, our stockholders’ return on investment will depend on appreciation in the price of our common stock.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
We cannot guarantee that our stock repurchase programs will be fully consummated or will enhance long-term stockholder value, and stock repurchases could increase the volatility of our stock prices and could diminish our cash reserves.
In May 2022, our board of directors approved a stock repurchase program under which we were authorized to purchase up to $75.0 million of our common stock from time to time. In January 2024, our board of directors approved an additional stock repurchase program under which we were authorized to purchase up to $125.0 million of our common stock from time to time. In February 2024, we completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of our existing stockholders, at an offering price of $19.00 per share, or the February Secondary Offering, during which we used approximately $44.4 million (including excise taxes) of our stock repurchase program for the stock repurchase in connection with the February Secondary Offering. As of December 31, 2024, there was an aggregate of approximately $29.7 million remaining for repurchase under our stock repurchase programs. In February 2025, our board of directors approved a new stock repurchase program under which we are authorized to purchase up to $129.5 million of our common stock from time to time, superseding all prior authorized stock repurchase programs.
Our repurchase program does not have an expiration date and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares, on any particular timetable or at all. There can be no assurance that we will repurchase stock at favorable prices. Further, our stock repurchases could affect our stock trading prices, increase their volatility, reduce our cash reserves, and may be suspended or terminated at any time, which may result in a lower market valuation of our common stock. Additionally, we do not expect that the impacts of the IRA’s excise tax on our stock repurchase program, or the regulations issued by the U.S. Department of the Treasury concerning the excise tax, will have a material impact on our results of operations.
Delaware law and certain provisions in our charter and bylaws could delay, discourage, or prevent a change in control of our company.
Our status as a Delaware corporation and the existence of certain provisions of our charter and bylaws contain provisions that could delay, discourage, or prevent a change in control of our company that a stockholder may consider favorable. These provisions include:
•a classified board of directors with three-year staggered terms;
•the removal of directors only for cause and subject to the affirmative vote of holders of at least 66 2/3% of our voting power;
•the ability of our board of directors to both issue shares of preferred stock and determine the price and other terms of those shares without stockholder approval;
•allowing Thoma Bravo to fill any vacancy on our board of directors for so long as affiliates of Thoma Bravo own 30% or more of our outstanding shares of common stock and, thereafter, allowing only our board of directors to fill vacancies on our board of directors;
•a prohibition on stockholder action by written consent;
•the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, our chief executive officer, or our president (in the absence of a chief executive officer);
•the requirement for the affirmative vote of holders of at least 66 2/3% of our outstanding voting stock, voting together as a single class, to amend the provisions of our charter relating to the management of our business or the requirement for the affirmative vote of holders of at least 75% of our outstanding voting stock, voting together as a single class, to amend certain provisions of our bylaws;
•the ability of our board of directors to amend our bylaws;
•advance notice procedures for stockholders to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting; and
•prohibition of cumulative voting in the election of our board of directors.
Our charter also provides us with protections similar to Section 203 of the Delaware General Corporation Law and prevents certain business combinations with a stockholder owning at least 15% of our outstanding voting stock, unless approved in a prescribed manner. Our charter also provides, however, that transactions with Thoma Bravo, including the Thoma Bravo Funds and any persons to whom any Thoma Bravo Fund sells its common stock, will be deemed to have been approved by our board of directors.
Our bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a breach of fiduciary duty by one or more of our directors, officers, or employees, (iii) any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum selection clause may impose additional litigation costs on stockholders, discourage claims, or limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Although this provision may be beneficial in its consistency in the application of Delaware law, the Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders. Alternatively, if the enforceability of the choice of forum provision contained in our bylaws is challenged and a court finds such provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. Our bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. This provision would not apply to any action brought to enforce a duty or liability created by the Exchange Act and the rules and regulations thereunder. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provisions.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters is located in Costa Mesa, California, where we currently lease 19,838 square feet pursuant to a lease agreement that expires in May 2025. We also lease an additional facility in Baton Rouge, Louisiana.
We believe that our facilities are suitable to meet our current needs. As our business grows, we will evaluate whether to expand our physical facilities. We believe that, if we need to add new facilities, suitable additional or alternative space will be available as needed to accommodate any such growth.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
We are not currently a party to any litigation or claims that, if determined adversely to us, would have a material adverse effect on our business, operating results, financial condition, or cash flows. We are, from time to time, party to litigation and subject to claims in the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock has been listed on the New York Stock Exchange under the symbol “MLNK” since July 28, 2021. Prior to that date, there was no public trading market for our common stock.
Holders of Record
As of March 6, 2025, there were 38 registered stockholders of record of our common stock. We believe a substantially greater number of beneficial owners hold shares in street name through brokers, banks or other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared or paid any cash dividend on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not expect to pay any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant.
Performance Graph
The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Exchange Act, or the Securities Act.
The performance graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Russell 2000 Index and the S&P 1500 Application Software Index. The graph assumes $100 was invested at the market close on July 28, 2021, which was our initial trading date, in our common stock. Data for the Russell 2000 Index and the S&P 1500 Application Software Index assume reinvestment of dividends, if any. Our offering price of our common stock in our initial public offering, which had a closing stock price of $24.60 on July 28, 2021, was $26.00 per share.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
Base Period
July 28,
2021 December 31,
2021 2021 2022 2023 2024
MeridianLink, Inc. $ 100 $ 88 $ 56 $ 101 $ 84
Russell 2000 Index 100 101 79 91 100
S&P 1500 Application Software Index 100 103 67 110 121
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended December 31, 2024, we did not repurchase any Company equity securities.
Equity Compensation Plan Information
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. 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 consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Our fiscal year ends on December 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
We are a leading vertical SaaS provider of secure, cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and credit reporting agencies, or CRAs. Financial institutions turn to MeridianLink to empower their digital transformation as they seek to transition business models, create new revenue streams, and increase client engagement. In addition to providing business results, our mission-critical digital lending software solutions enable our customers to create a superior consumer experience that wins in an increasingly digital market. Consumers’ financial needs are evolving, and our platform is designed to create personalized, automated solutions, which improve client acquisition and retention for our customers. Our solutions also allow our customers to operate more efficiently by enabling automated loan decisioning and enhanced risk management, saving resources that can be re-allocated to best serving their clients’ needs.
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. Our digital solutions are designed to be highly configurable, scalable, and adaptable to the specific strategies 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, paired with the strategic guidance from our consultants, empower our customers’ digital transformation. We believe there is a clear return on investment in MeridianLink One for our customers through business results such as increases in revenue, efficiency, and satisfaction of clients.
Our solutions are central to the financial institution’s technology ecosystem and help drive additional 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-five years with input from across our customer base, our Partner Marketplace provides our customers with optional integrations, the collective capabilities of which we believe further distinguish our solution from that of competitors.
We deliver our solutions to most 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.
As a result of this pricing approach, our revenues 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 migrated our solutions onto the public cloud, which helps to extend our innovation and security posture. We believe that our increased focus on our go-to-market strategy and strategic partnerships will drive incremental opportunities for revenue and accelerate customer cross-sell growth.
In addition, we believe there is untapped market potential in the digital lending and account opening markets. We believe significant opportunity for additional customer acquisition and revenue growth exists as financial institutions continue to adopt online lending and account opening practices and require more efficient technologies. We provide these services to institutions of all sizes and complexities but currently focus on the middle market. By focusing on better sales execution, providing and allocating resources where needed, and improving marketing efforts, we are confident in our ability to expand our customer base within our current target market.
We cater largely to financial institutions such as community banks and credit unions with assets under management between $100 million and $10 billion. For these institutions, lending is often the single most important revenue driver with approximately 70% of revenue for the full-year 2023 attributable to lending activities, according to the Federal Deposit Insurance Corporation as of April 3, 2024. In recent years, community banks have continued to compete with their typically larger non-community bank competitors. An opportunity exists in expanding our target market to new customers with greater than $10 billion in assets under management that are interested in retail-focused, configurable lending software solutions.
We have a build, buy, or partner capital allocation strategy for delivering value to customers and stockholders. For more than two decades, we have continuously invested in expanding and improving our solutions to expand our portfolio capabilities and reach into the consumer lending markets. For example, we designed a patented debt optimization engine to deepen the integration of our data verification and LOS solutions to empower loan officers to maximize loan acceptance rates, boost cross-sell opportunities, and deepen their relationships with clients.
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 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, Fluctuating Inflation, and Elevated Interest Rates
We are also closely monitoring the recent volatility in capital markets, elevated inflation rates, and the increased economic uncertainty in the United States, which has led to increased uncertainty about business continuity. Additionally, interest rates, including for mortgages and consumer lending, are elevated compared to historical rates and may increase further in the future or stay at elevated levels. These factors may adversely affect our business and our results of operations. As our customers react to global economic conditions and economic volatility, we may see reduced spending on our products and lower loan volumes as financial institutions face challenges attracting deposits 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 to elevated levels in recent years. 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. Although interest rates began to decline in 2024, the United States Federal Reserve could hold interest rates at elevated levels or 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.
Developments in 2024
Debt Modification
In May 2024, we entered into a Refinancing Amendment and First Amendment to Credit Agreement, or the 2024 Amendment, to amend our credit agreement dated as of November 10, 2021, as amended, which, among other things, lowered the interest rate margin on our term loan and increased the aggregate principal amount of the term loan by $50.0 million. We incurred $1.3 million in additional fees related to the 2024 Amendment, of which $0.8 million were deferred and recorded as debt issuance costs. Excluding the impact of volatility in Term SOFR, the 2024 Amendment is anticipated to increase interest expense by approximately $0.5 million per quarter, commencing with the fiscal quarter ended June 30, 2024. Increases to Term SOFR during any period would in turn increase our effective interest rate and result in higher interest expense, including acceleration of amortization of debt issuance costs. Our effective interest rate on our term loan was 7.4% as of December 31, 2024.
Organizational Realignment Plan
In January 2024, our board of directors authorized an organizational realignment plan, or the 2024 Realignment Plan, that was designed to manage operating costs, enable efficient delivery on business objectives, and allow for growth in areas of strategic importance. The 2024 Realignment Plan included a reduction of the Company’s then-current workforce by approximately 12%. We completed the 2024 Realignment Plan in the second quarter of 2024. Restructuring charges of $4.0 million for severance and related costs were recognized during the year ended December 31, 2024. These charges are reflected in restructuring related costs on our consolidated statements of operations.
February 2025 Stock Repurchase Program
In February 2025, our board of directors authorized a new stock repurchase program to acquire up to $129.5 million of the Company’s common stock including commissions, fees, and excise taxes, superseding all prior authorized stock repurchase programs, with no fixed expiration date and no requirements to purchase any minimum number of shares. Shares may be repurchased under the repurchase program through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. Any shares of common stock repurchased under the repurchase program will be retired and automatically returned to the status of authorized but unissued shares of common stock.
January 2024 Stock Repurchase Program
In January 2024, our board of directors authorized a new stock repurchase program to acquire up to $125.0 million of our common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares, or the 2024 Stock Repurchase Program. The manner, timing, and actual number of shares repurchased under the program will depend on a variety of factors, including price, working capital needs, general business and market conditions, regulatory requirements, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. The repurchase programs may be commenced, suspended, or terminated at any time by us at our discretion without prior notice. Any shares of common stock repurchased under the 2024 Stock Repurchase Program will be retired and automatically returned to the status of authorized but unissued shares of common stock. Approximately $105 million (including excise taxes) of the 2024 Stock Repurchase Program was used for stock repurchases during the year ended December 31, 2024, including $44.4 million for the repurchase in connection with the February Secondary Offering, as described below. The 2024 Stock Repurchase Program has been superseded by the February 2025 Stock Repurchase Program described above.
Secondary Offerings by Selling Stockholders and Related Common Stock Repurchase
On September 30, 2024, we completed an underwritten secondary offering for the sale of 6,000,000 shares of common stock by certain funds managed by Thoma Bravo, L.P., at an offering price of $21.05 per share, or the September Secondary Offering. In connection with the September Secondary Offering, the selling stockholders granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of common stock at the offering price of $21.05 per share. The underwriters partially exercised their option to purchase an additional 650,000 shares of common stock on October 18, 2024, and the remaining portion of the option expired unexercised on October 26, 2024. We did not receive any proceeds from the sale of our common stock by the selling stockholders in the September Secondary Offering. We incurred costs of $0.7 million in connection with the September Secondary Offering, which were recorded in general and administrative expenses on our consolidated statements of operations.
On February 9, 2024, we completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of our existing stockholders, at an offering price of $19.00 per share, or the February Secondary Offering. In connection with the February Secondary Offering, selling stockholders granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions. The underwriters did not exercise their option to purchase any additional shares before the expiration of this 30-day window. We did not receive any proceeds from the sale of our common stock by the selling stockholders in the February Secondary Offering. We incurred costs of $1.4 million in connection with the February Secondary Offering, which were recorded in general and administrative expenses on our consolidated statements of operations.
The September and February Secondary Offerings were made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276336), which was filed with the Securities and Exchange Commission on December 29, 2023, and became effective on January 8, 2024.
On February 9, 2024, in connection with the February Secondary Offering and pursuant to our 2024 Stock Repurchase Program, we repurchased 2,406,015 shares of our common stock from the underwriters at a price per share equal to $18.2875, which is equal to the per share price at which the underwriters purchased the shares from the selling stockholders in the February Secondary Offering, resulting in an aggregate purchase price of approximately $44.4 million (including excise taxes).
Components of Operating Results
We have one primary business activity and operate in a single operating and reportable segment.
Revenues
Our revenues consist of three components: subscription fees, professional services, and other revenues.
Subscription Fee Revenues
Our software solutions are generally available for use as hosted application arrangements under subscription fee agreements. Our software solutions consist of an obligation for us to provide continuous access to a technology solution that we host and routine customer support, both of which we account for as a stand-ready performance obligation. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date our solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. For the majority of our customers, additional fees for monthly usage are recognized as revenue in the month when the usage amounts are determined and reported. Certain of our subscription contracts are invoiced to our customers annually, and revenue is recognized ratably over the service term.
In determining whether SaaS services are distinct, we have considered whether the series guidance applies to our subscription services. We have considered various factors including that substantially all our SaaS arrangements involve the transfer of a service to the customer, which represents a performance obligation that is satisfied over time because the customer simultaneously receives and consumes the benefits of the services provided. Customer support services, forms maintenance, and subscription services are considered a series of distinct services that are accounted for as a single performance obligation, as the nature of the services are substantially the same and have the same pattern of transfer (i.e., distinct days of service). For these contracts, we allocate the ratable portion of the consideration to each period based on the services provided in such period.
We have concluded that our subscription fees related to monthly usage above the levels included in the standard subscription fee relate specifically to the transfer of the service to the customer in that month and are consistent with the allocation objective when considering all the performance obligations and payment terms in the contract. Therefore, we generally recognize additional usage revenues in the month when the usage amounts are determined and reported. This allocation reflects the amount we expect to receive for the services for the given period.
We have a limited number of legacy customers that host and manage their solutions on-premise under term license and maintenance agreements. We no longer market or sell our solutions under this type of arrangement and these legacy customers represents an immaterial amount of our subscription fee revenues. However, there is no planned sunset or end of life for these on-premise solutions.
Professional Services Revenues
We offer implementation, configuration, consulting, and training services for our software solutions and SaaS offerings. Revenues from our professional services are recognized as control is transferred to the customer, which can be either at a point in time or over time, depending on the nature of the contractual performance obligations.
In determining whether implementation services are distinct from subscription services, we have considered that there is not a significant level of integration between implementation and subscription services. Further, implementation services in our contracts provide benefit to the customer with other readily available resources and the implementation services generally are not interdependent with the SaaS subscription services. Therefore, implementation services are generally accounted for as a separate performance obligation, as they represent distinct services that provide benefit to the customer apart from SaaS services.
Consulting and training services are generally considered a separate performance obligation as they are considered distinct services that provide a benefit to the customer on their own.
Other Revenues
We enter into referral and marketing agreements with various third parties, in which revenues are primarily generated from transactions initiated by the third parties’ customers. We may introduce our customers to a referral partner or offer additional services available from the referral partner via an integration with our software solutions. Other revenues are recognized in the period the services are performed, which can be either at a point in time or over time, depending on the nature of the contractual performance obligations.
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 are ready for their intended use. 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
Gross profit is revenues less cost of revenues. Gross profit has been, and will continue to be, affected by various factors, including the mix of our subscription fees, professional service and other revenues, the costs associated with our personnel, third-party vendors, and cloud-based hosting services, and the extent to which we expand our implementation and customer support services. We expect that our gross profit will fluctuate from period to period depending on the interplay of these various factors.
Operating Expenses
General and Administrative
General and administrative expenses consist primarily of salaries, and other personnel-related costs, including employee benefits, bonuses, and share-based compensation, of our administrative, finance and accounting, information systems, legal, and human resources employees. General and administrative expenses also include consulting and professional fees, insurance, franchise taxes, travel, and credit loss expense.
General and administrative expenses include depreciation of property and equipment and amortization of acquired intangible assets. Identifiable intangible assets with finite lives, such as customer relationships, trademarks, and non-competition agreements, are amortized over their estimated useful lives on a straight-line basis.
We continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a public company. These expenses include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of investor relations activities, and investments to drive scalability. As a result, we expect our general and administrative expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as we scale the business and continue to adjust to being a public reporting company.
Research and Development
Research and development expenses include salaries and other personnel-related costs, including employee benefits, bonuses, and share-based compensation. Research and development expenses also include third-party contractor expenses, software development costs, allocated overhead, and other related expenses incurred in developing new solutions and enhancing existing solutions.
Certain research and development costs that are related to our internal software development, which include salaries and other personnel-related costs attributed to certain programmers, software engineers, and quality control teams, are capitalized and are included in intangible assets, net on the 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.
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. Sales commissions and related payroll benefits related to our customer agreements 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 attributable to our credit facilities and amortization of debt issuance costs partially offset by interest income from our interest-bearing cash accounts.
Provision For Income Taxes
Our income tax expense includes the changes for the deferred tax asset valuation allowance, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits that reflect management’s best estimate of current and future taxes to be paid. We are subject to federal income taxes in the United States and numerous state jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense.
We recognize deferred tax assets to the extent that these assets are more likely than not to be realized. If they are not, deferred tax assets are reduced by a valuation allowance. We assess whether a valuation allowance should be recorded against our deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” realization standard. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the past and current trend in volatility in our business operating environment which has impacted our current ability and expectation to generate sufficient future taxable income to fully realize our deferred tax assets, we have determined that it is more likely that we would not be able to utilize all of our deferred tax assets, and therefore, we have established a partial valuation allowance on our deferred tax assets as of December 31, 2024, and 2023, of $34.7 million and $29.4 million, respectively.
We have recorded uncertain tax position related to certain research and development tax credits utilized in certain tax jurisdictions, due to the partial utilization of these credits in these tax jurisdictions. This tax position has been recorded primarily as a reduction to the related deferred assets associated with these credits. To date, penalties and interest associated with this position have been immaterial.
Results of Operations
The following table sets forth our consolidated statements of operations data for each of the periods indicated (in thousands):
Year Ended December 31,
2024 2023 2022
Revenues, net $ 316,298 $ 303,617 $ 288,046
Cost of revenues:
Subscription and services (1)
89,273 90,362 90,778
Amortization of developed technology 19,255 18,129 15,553
Total cost of revenues 108,528 108,491 106,331
Gross profit 207,770 195,126 181,715
Operating expenses:
General and administrative (1)
116,458 92,663 82,649
Research and development (1)
39,454 47,517 42,592
Sales and marketing (1)
43,182 35,792 23,658
Restructuring related costs (1)
4,040 3,621 -
Acquisition related costs - - 4,228
Total operating expenses 203,134 179,593 153,127
Operating income 4,636 15,533 28,588
Other (income) expense, net:
Interest and other income (4,924) (4,029) (1,063)
Interest expense 38,424 38,158 24,227
Total other expense, net 33,500 34,129 23,164
(Loss) income before provision for income taxes (28,864) (18,596) 5,424
Provision for income taxes 908 23,943 4,130
Net (loss) income $ (29,772) $ (42,539) $ 1,294
______________
(1)Share-based compensation is as follows:
Year Ended December 31,
2024 2023 2022
Cost of revenues $ 4,705 $ 3,848 $ 4,630
General and administrative 29,984 16,456 9,499
Research and development, net of amounts capitalized 9,663 7,060 6,472
Sales and marketing 7,010 3,849 2,160
Acceleration (forfeitures) included in restructuring related costs (7) (663) -
Total share-based compensation expense $ 51,355 $ 30,550 $ 22,761
Comparison of the years ended December 31, 2024 and 2023
Revenues, net
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Revenues, net $ 316,298 $ 303,617 $ 12,681 4 %
Revenues increased from 2023 to 2024 primarily due to higher revenue of $17.1 million from our Lending Software Solutions from new and existing customers. The increase was partially offset by lower revenue of $4.4 million from our Data Verification Software Solutions driven by lower volumes in our mortgage-related revenues. For both of our solutions, we receive incremental revenues if customers exceed their minimum commitments for monthly transactions. This is typically based on number of applications or closed and funded loans for Lending Software Solutions and credit, tenant, or employment verification reports for our Data Verification Software Solutions.
During 2023, we lowered our estimate of variable consideration by $2.3 million associated with a channel reseller contract in Lending Software Solutions due to a commercial dispute as the amount we expected to receive under this contract was reduced and receipt of this amount was no longer considered probable. There were no similar adjustments to our estimates of variable consideration during 2024.
Cost of Revenues and Gross Profit
Subscription and services
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Subscription and services $ 89,273 $ 90,362 $ (1,089) (1) %
Subscription and services cost of revenues decreased $1.1 million, or 1%, from 2023 to 2024. The decrease was primarily due to a $2.1 million decrease in third-party costs, which was driven by lower Data Verification Software Solutions volumes due to lower volumes in our mortgage-related revenues, as well as decreases in various other expenses. The decrease was partially offset by higher employee-related costs of $1.8 million, including higher share-based compensation expense of $0.9 million.
Amortization of Developed Technology
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Amortization of Developed Technology $ 19,255 $ 18,129 $ 1,126 6 %
Amortization of developed technology increased $1.1 million, or 6%, from 2023 to 2024. The increase was due to increased amortization for internally developed software as we continue to build and enhance our product offerings.
Gross Profit
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Gross profit $ 207,770 $ 195,126 $ 12,644 6 %
Gross profit increased $12.6 million, or 6%, from 2023 to 2024. The increase was primarily due to higher Lending Software Solutions revenue and a decrease in third-party costs driven by lower Data Verification Software Solutions volumes. The increase was partially offset by lower Data Verification Software Solutions revenue, higher employee-related costs, and higher amortization of developed technology.
Operating Expenses
General and Administrative
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
General and administrative $ 116,458 $ 92,663 $ 23,795 26 %
General and administrative expenses increased $23.8 million, or 26%, from 2023 to 2024. Share-based compensation expense increased $13.5 million. Legal fees increased $6.4 million from 2023 to 2024, including $1.9 million related to the settlement of class action litigation claims and related legal expenses and $2.1 million related to our Secondary Offerings. Advisory fees increased $3.0 million from 2023 to 2024, including $1.3 million for services performed by a third party related to efforts to remediate our material weakness. Audit and tax professional fees increased $0.6 million. These increases were partially offset by a decline in general insurance of $1.1 million from 2023 to 2024.
Research and Development
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Research and development $ 39,454 $ 47,517 $ (8,063) (17) %
Research and development expenses decreased $8.1 million, or 17%, from 2023 to 2024. The decrease from 2023 to 2024 was primarily due to lower employee-related and contractor costs of $7.6 million, which was net of amounts capitalized and a $2.6 million increase in stock compensation. Due to the 2024 Realignment Plan, there was lower headcount on our research and development teams resulting in lower costs. Rent expense declined $0.4 million from 2023 to 2024 due to the expiration of a lease in December 2023.
Sales and Marketing
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Sales and marketing $ 43,182 $ 35,792 $ 7,390 21 %
Sales and marketing expenses increased $7.4 million, or 21%, from 2023 to 2024. The increase was driven by higher employee-related costs of $5.4 million from increased headcount on our sales and marketing teams and higher share-based compensation of $3.2 million. Commissions increased $1.1 million, net of amounts capitalized.
Restructuring Related Costs
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Restructuring related costs $ 4,040 $ 3,621 $ 419 12 %
Restructuring related costs are costs related to the 2024 Realignment Plan completed during 2024 and the 2023 Restructuring Plan completed in 2023. Restructuring related costs were primarily related to cash payments for severance, net of non-cash stock compensation forfeitures and acceleration, and other termination-related costs.
Total Other Expense, net
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Total other expense, net $ 33,500 $ 34,129 $ (629) (2) %
Total other expenses, net decreased $0.6 million, or 2%, from 2023 to 2024. Other income in 2024 included the receipt of a $0.8 million indemnity claim from a past acquisition. Interest income on our cash and cash equivalents was higher by $0.5 million, while interest expense increased $0.3 million.
Provision for Income Taxes
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Provision for income taxes
$ 908 $ 23,943 $ (23,035) (96) %
Provision for income taxes decreased $23.0 million from 2023 to 2024. The decrease was primarily due to the valuation allowance provision of $5.2 million in 2024 compared to $29.4 million in 2023. The valuation allowance was recorded in 2023. The provision was also impacted by a higher limitation on certain employee remuneration under section 162(m) of the Internal Revenue Code and a lower benefit from our loss before provision for income taxes and research and development credits.
Comparison of the Years Ended December 31, 2023 and 2022
For a comparison of our results of operations and cash flows for the years ended December 31, 2023, and 2022, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report on Form 10-K.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $92.8 million and accounts receivable of $34.4 million. We also have an unused revolving credit facility of $50.0 million under our Credit Agreement. Based upon our current levels of operations, we believe that our cash flows from operations along with our other sources of liquidity are adequate to meet our cash requirements for at least the next twelve months.
We have financed our operations primarily through cash flows from operations, long-term debt, and proceeds from equity issuances. In May 2024, in connection with the 2024 Amendment to our Credit Agreement, we increased the aggregate principal amount of the term loan by $50.0 million. We have also filed a shelf registration statement on Form S-3, or the Shelf Registration Statement, that became effective January 8, 2024, under which we may offer or sell, in one or more offerings, our common stock, preferred stock, warrants, debt securities, and/or units consisting of some or all of these securities in a maximum aggregate amount of up to $500.0 million.
Our primary uses of cash are funding operations, stock repurchases, debt principal and interest payments, capital expenditures, and acquisitions. Our use of cash is impacted by the timing and extent of the required payments for each of these activities. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the introduction of new and enhanced solutions, the seasonality impacts on our business, the timing and extent of spending to support our growth strategy, the continued market acceptance of our solutions, the future acquisitions of solutions or businesses, and future stock repurchases. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. We continue to monitor our financing requirements and may pursue refinancing opportunities to potentially reduce interest rates and extend maturities. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Year Ended December 31, Change
(in thousands) 2024 2023 $ %
Net cash provided by (used in):
Operating activities $ 77,802 $ 67,964 $ 9,838 14 %
Investing activities (7,459) 20,133 (27,592) (137) %
Financing activities (58,019) (63,436) 5,417 9 %
Net increase in cash, cash equivalents
$ 12,324 $ 24,661 $ (12,337) (50) %
Cash Flows from Operating Activities
Our largest source of operating cash is cash collection from sales of subscription fees to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, marketing expenses, payments to third-party vendors, and interest expense. The increase in operating cash flow from 2023 to 2024 was driven by a higher net income after adjusting for non-cash items of $11.1 million. The increase was partially offset by a use of cash of $1.2 million from the net change in working capital and other operating assets and liabilities.
Net cash provided by operating activities of $77.8 million in 2024 was primarily driven by net loss of $29.8 million adjusted for non-cash operating items of $115.7 million (primarily depreciation and amortization of $62.3 million and share-based compensation of $51.4 million) and an increase in accounts payable of $2.4 million. These sources were offset by an increase in prepaid expenses and other assets of $5.7 million, an increase in accounts receivable of $2.2 million, and a decrease in accrued liabilities and deferred revenue of $2.7 million.
Net cash provided by operating activities of $68.0 million in 2023 was primarily driven by net loss of $42.5 million adjusted for non-cash operating items of $117.4 million (primarily depreciation and amortization of $61.2 million, share-based compensation of $30.6 million, and deferred income taxes of $23.6 million) and an increase in accounts payable of $3.2 million. These sources were offset by an increase in prepaid expenses and other assets of $7.0 million, an increase in accounts receivable of $0.4 million, and a decrease in accrued liabilities and deferred revenue of $2.6 million.
Cash Flows from Investing Activities
Net cash used in investing activities in 2024 was $7.5 million compared to net cash provided by investing activities in 2023 of $20.1 million. Capitalized software additions were $7.1 million and $9.3 million in 2024 and 2023, respectively. Purchases of property and equipment were $0.4 million and $0.9 million in 2024 and 2023, respectively. In 2023, $30.0 million was received from an escrow release related to a prior acquisition and $0.3 million was received related to a prior acquisition.
Cash Flows from Financing Activities
Net cash used in financing activities was $58.0 million and $63.4 million in 2024 and 2023, respectively. Repurchases of common stock and related excise taxes paid were $105.3 million and $61.2 million in 2024 and 2023, respectively. Proceeds from the issuance of debt net of payments for principal and debt issuance costs was $44.5 million in 2024. Principal payments of debt were $4.4 million in 2023. Proceeds from the exercise of stock options and employee stock purchase plan, net of taxes paid related to net share settlement of restricted stock units, were $2.8 million and $2.4 million in 2024 and 2023, respectively.
Debt
As of December 31, 2024, our term loan had principal outstanding of $472.7 million with approximately $4.8 million due in each of 2025, 2026, and 2027, in each case, payable in equal quarterly installments, with the remainder due at maturity in November 2028. We were in compliance with all debt covenants as of December 31, 2024. There were no borrowings under our $50.0 million revolving credit facility as of December 31, 2024. For a detailed description of our debt, please see Note 6 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We do not have any special purpose entities or off-balance sheet financing arrangements.
Stock Repurchase Program
In May 2022, our board of directors authorized a stock repurchase program to acquire up to $75.0 million of our common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares, or the 2022 Stock Repurchase Program. In January 2024, the Company’s board of directors authorized a stock repurchase program to acquire up to $125.0 million of our common stock, including the costs of commissions, fees, and excise taxes, with no fixed expiration date and no requirement to purchase any minimum number of shares, or the 2024 Stock Repurchase Program. Subsequent to the end of the 2024 fiscal year, in February 2025, our board of directors authorized a new stock repurchase program to acquire up to $129.5 million of our common stock, superseding all prior authorized stock repurchase programs, with no fixed expiration date and no requirements 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. As of December 31, 2024, there was a total of $29.7 million remaining for repurchase under the superseded 2022 and 2024 Stock Repurchase Programs.
Contractual Obligations
Our principal commitments consist of obligations under leases for office space, server equipment, and co-location data center facilities that expire through December 2026. As of December 31, 2024, the future non-cancelable minimum payments under these commitments were approximately $1.2 million, with payments of $0.7 million due in the next 12 months and $0.5 million due thereafter. In addition to our leasing arrangements, we have other contractual commitments primarily related to third-party cloud infrastructure agreements and service subscription arrangements used to support operations at the enterprise level. As of December 31, 2024, our total commitments under these agreements were approximately $13.1 million, of which payments of $4.3 million are due in the next 12 months and $8.8 million are due thereafter. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.
Recent Accounting Pronouncements
See Note 2, “Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial condition, and cash flows.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial results may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses incurred during the reporting periods. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of our existing contracts, our evaluation of trends in the industry, and information available from outside sources as appropriate. Our actual results may differ from those estimates.
We believe that of our significant accounting policies, which are described in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.
Goodwill Impairment Test
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is tested for impairment at least annually, as of October 1, at the reporting unit level or more frequently if events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include consideration of certain key factors including macroeconomic conditions, industry and market conditions, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance. The Company first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not the fair value of its reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if the Company concludes otherwise, then it is required to perform a quantitative impairment test. The Company determined that impairment of goodwill was not likely and thus was not required to perform a quantitative assessment in 2024.
Intangible Assets Impairment Test
We evaluate whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the carrying value or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required. No events or changes in circumstances indicated that the carrying value or remaining period of amortization may be impaired in 2024.
Income Taxes
We recognize deferred tax assets to the extent that these assets are more likely than not to be realized. If they are not more likely than not to be recognized, deferred tax assets are reduced by a valuation allowance. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Following this analysis, if we determine that deferred tax assets are more likely than not to be realized in the future, in excess of their net recorded amount, we will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. After analyzing all available evidence, including the past and current trend in volatility in our business operating environment which has impacted our current ability and expectation to generate sufficient future taxable income to fully realize our deferred tax assets, we have determined that it is more likely that we would not be able to utilize all of our deferred tax assets, and therefore, we have established a partial valuation allowance on our deferred tax assets of $34.7 million and $29.4 million as of December 31, 2024, and 2023, respectively, to reduce our deferred tax assets.
Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we use certain “non-GAAP financial measures” to clarify and enhance our understanding of past performance and future prospects. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor adjusted EBITDA, the non-GAAP financial measure described below, and we believe it is helpful to investors for the reasons listed below.
Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, because they may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures, because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, amortization and depreciation, interest expense, and share-based compensation expense, which are excluded from adjusted EBITDA have been and we expect will continue to be significant recurring expenses in our business for the foreseeable future. Income tax expense is also excluded from adjusted EBITDA and can be volatile due to temporary and permanent differences between GAAP and IRS statutory regulations, and changes resulting from recording valuation allowances due to identified impairments in our deferred tax assets. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.
Adjusted EBITDA
We define adjusted EBITDA as net (loss) income before interest expense, provision for income taxes, depreciation and amortization of intangible assets, share-based compensation expense, employer payroll taxes on employee stock transactions, expenses associated with our public offerings, restructuring related costs, expenses related to debt modification, litigation related charges and gains not related to our core business, expenses for services performed by a third party consultant related to efforts to remediate our material weakness, third-party acquisition related costs, and deferred revenue reductions from purchase accounting for acquisitions prior to 2022.
We have provided below a reconciliation of adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure.
We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results for the following reasons:
•adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;
•our management uses adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance;
•adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations, and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and
•our investor and analyst presentations include adjusted EBITDA as a supplemental measure of our overall operating performance.
Adjusted EBITDA should not be considered as an alternative to net (loss) income or any other measure of financial performance calculated and presented in accordance with GAAP. The use of adjusted EBITDA as an analytical tool has limitations such as:
•depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and adjusted EBITDA does not reflect cash requirements for such replacements;
•adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;
•adjusted EBITDA does not reflect the potentially dilutive impact of share-based compensation;
•adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
•adjusted EBITDA does not reflect tax payments that could reduce cash available for use; and
•excludes the impact of the write-down of deferred revenues due to purchase accounting in connection with our acquisitions, and therefore includes revenues that will never be recognized under GAAP;
•other companies, including companies in our industry, might calculate adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.
The following table presents a reconciliation of net (loss) income to adjusted EBITDA for each of the periods presented (in thousands):
Year Ended December 31,
2024 2023 2022
Net (loss) income
$ (29,772) $ (42,539) $ 1,294
Interest expense 38,424 38,158 24,227
Provision for income taxes
908 23,943 4,130
Depreciation and amortization of intangible assets
58,252 57,829 53,982
Share-based compensation expense 51,362 31,213 22,761
Employer payroll taxes on employee stock transactions 1,587 687 350
Expenses associated with public offering
2,114 - -
Litigation related charges(1)
1,692 - -
Expenses related to debt modification(2)
473 - -
Restructuring related costs 4,040 3,621 -
Expenses associated with material weakness remediation(3)
1,347 - -
Acquisition related costs
277 - 4,228
Deferred revenue reduction from purchase accounting for acquisitions prior to 2022(4)
- 78 227
Adjusted EBITDA $ 130,704 $ 112,990 $ 111,199
___________
(1)Litigation-related charges pertains to litigation settlements and related legal fees. During the year ended December 31, 2024, we incurred $1.5 million in settlements of class action lawsuits and $0.4 million in third-party legal fees directly related to the settlements. During the year ended December 31, 2024, we recognized a $0.2 million gain on a favorable litigation settlement.
(2)Expenses related to debt modification are legal and other third party costs incurred in relation to the 2024 Amendment of our Credit Agreement in May 2024.
(3)Expenses for services performed by a third party consultant related to efforts to remediate our previously identified material weakness.
(4)Deferred revenue reduction from purchase accounting for acquisitions prior to the adoption of ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which we early adopted on January 1, 2022, on a prospective basis. Deferred revenue from acquisitions prior to the adoption of ASU 2021-08 was recognized on a straight-line basis through December 31, 2023.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in the ordinary course of our business. Market risk is the risk of loss that may impact our financial position, future earnings, or future cash flows that may result from changes in financial market prices and rates. Our market risk is primarily a result of fluctuations in interest rates. We do not use derivative financial instruments for speculative, hedging, or trading purposes, although in the future we might enter into exchange rate hedging arrangements to manage the risks described below.
Interest Rate Risk
We had cash of $92.8 million as of December 31, 2024, consisting of bank deposits. We did not hold any cash or cash equivalents as of December 31, 2024 that held a significant degree of interest rate risk.
As of December 31, 2024, we had an outstanding principal amount of $472.7 million for the term loan under our Credit Agreement. The interest rate on our term loan is floating and, therefore, changes in interest rates could adversely affect our future earnings and cash flows. Our term loan bears interest based on the adjusted benchmark rate, plus an applicable rate, which was equivalent to 2.75% at December 31, 2024.
Based on the amount of variable rate debt outstanding at December 31, 2024, and holding the principal amount outstanding at December 31, 2024 constant, each 100 basis-point increase in interest rates would increase the interest we incur by $4.7 million per year.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 243)
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Operations for the Years Ended December 31, 2024, 2023, and 2022
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2024, 2023, and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023, and 2022
Notes to Consolidated Financial Statements
Note 1 - Organization and Description of Business
Note 2 - Summary of Significant Accounting Policies
Note 3 - Revenue Recognition
Note 4 - Balance Sheet Components
Note 5 - Commitments and Contingencies
Note 6 - Debt
Note 7 - Stockholders’ Equity
Note 8 - Share-Based Compensation
Note 9 - Income Taxes
Note 10 - Related Party Transactions
Note 11 - Net Loss Per Share
Note 12 - Restructuring Activities
Note 13 - Business Combinations
Note 14 - Leases
Note 15 - Employee Benefits
Note 16 - Segment Information
Note 17 - Subsequent Events
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
MeridianLink, Inc.
Costa Mesa, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of MeridianLink, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2020.
San Francisco, California
March 13, 2025
MERIDIANLINK, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of
December 31, 2024
December 31, 2023
Assets
Current assets:
Cash and cash equivalents
$ 92,765 $ 80,441
Accounts receivable, net
34,422 32,412
Prepaid expenses and other current assets
10,973 11,574
Total current assets
138,160 124,427
Property and equipment, net 2,167 3,337
Right of use assets, net 1,095 1,140
Intangible assets, net 201,522 251,060
Goodwill 610,063 610,063
Other assets 8,326 6,224
Total assets
$ 961,333 $ 996,251
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 6,798 $ 4,405
Accrued liabilities
29,383 30,673
Deferred revenue
17,170 17,224
Current portion of debt, net of debt issuance costs
3,678 3,542
Total current liabilities
57,029 55,844
Long-term debt, net of debt issuance costs
464,922 420,004
Deferred tax liabilities, net 11,287 10,823
Long-term deferred revenue 75 792
Other long-term liabilities 527 541
Total liabilities
533,840 488,004
Commitments and contingencies (Note 5)
Stockholders’ Equity:
Preferred stock, $0.001 par value; 50,000,000 shares authorized; zero shares issued and outstanding at December 31, 2024 and December 31, 2023
- -
Common stock, $0.001 par value; 600,000,000 shares authorized, 76,049,681 and 78,447,701 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively
127 129
Additional paid-in capital 709,057 654,634
Accumulated deficit (281,691) (146,516)
Total stockholders’ equity 427,493 508,247
Total liabilities and stockholders’ equity $ 961,333 $ 996,251
The accompanying notes are an integral part of the consolidated financial statements.
MERIDIANLINK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Year Ended December 31,
2024 2023 2022
Revenues, net $ 316,298 $ 303,617 $ 288,046
Cost of revenues:
Subscription and services
89,273 90,362 90,778
Amortization of developed technology
19,255 18,129 15,553
Total cost of revenues 108,528 108,491 106,331
Gross profit
207,770 195,126 181,715
Operating expenses:
General and administrative
116,458 92,663 82,649
Research and development
39,454 47,517 42,592
Sales and marketing
43,182 35,792 23,658
Restructuring related costs 4,040 3,621 -
Acquisition related costs - - 4,228
Total operating expenses 203,134 179,593 153,127
Operating income 4,636 15,533 28,588
Other (income) expense, net:
Interest and other income (4,924) (4,029) (1,063)
Interest expense 38,424 38,158 24,227
Total other expense, net 33,500 34,129 23,164
(Loss) income before provision for income taxes
(28,864) (18,596) 5,424
Provision for income taxes
908 23,943 4,130
Net (loss) income $ (29,772) $ (42,539) $ 1,294
Net (loss) income per share:
Basic $ (0.39) $ (0.53) $ 0.02
Diluted $ (0.39) $ (0.53) $ 0.02
Weighted average common stock outstanding:
Basic 76,270,632 80,349,895 80,454,356
Diluted 76,270,632 80,349,895 82,403,679
The accompanying notes are an integral part of the consolidated financial statements.
MERIDIANLINK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share/unit amounts)
Common Stock Stockholders’ Equity
Shares Amount Additional paid-in capital Accumulated deficit
Balance at January 1, 2022 79,734,984 $ 88 $ 596,542 $ (40,352) $ 556,278
Vesting of restricted stock awards ("RSAs") 599,599 39 - - 39
Vesting of restricted stock units ("RSUs") 398,407 1 - - 1
Issuance of common stock due to exercise of stock options 33,359 - 211 - 211
Issuance of common stock through employee stock purchase plan 127,700 - 1,777 - 1,777
Shares withheld related to net share settlement of RSUs (11,956) - (206) - (206)
Repurchases of common stock (237,641) - - (3,375) (3,375)
Share-based compensation expense - - 23,072 - 23,072
Net income - - - 1,294 1,294
Balance at December 31, 2022 80,644,452 $ 128 $ 621,396 $ (42,433) $ 579,091
Vesting of RSAs 63,055 4 - - 4
Vesting of RSUs 1,055,665 1 - - 1
Issuance of common stock due to exercise of stock options 304,332 - 2,373 - 2,373
Issuance of common stock through employee stock purchase plan 131,424 - 1,679 - 1,679
Shares withheld related to net share settlement of RSUs (87,495) - (1,667) - (1,667)
Repurchases of common stock (3,663,732) (4) - (61,544) (61,548)
Share-based compensation expense - - 30,853 - 30,853
Net loss - - - (42,539) (42,539)
Balance at December 31, 2023 78,447,701 $ 129 $ 654,634 $ (146,516) $ 508,247
Vesting of RSUs 2,390,289 2 (2) - -
Issuance of common stock due to exercise of stock options 699,027 1 6,884 - 6,885
Issuance of common stock through employee stock purchase plan 129,925 - 1,807 - 1,807
Shares withheld related to net share settlement of RSUs (288,348) - (5,886) - (5,886)
Repurchases of common stock (5,328,913) (5) - (105,403) (105,408)
Share-based compensation expense - - 51,620 - 51,620
Net loss - - - (29,772) (29,772)
Balance at December 31, 2024 76,049,681 $ 127 $ 709,057 $ (281,691) $ 427,493
The accompanying notes are an integral part of the consolidated financial statements.
MERIDIANLINK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2024 2023 2022
Cash flows from operating activities:
Net (loss) income $ (29,772) $ (42,539) $ 1,294
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation
1,358 1,860 2,318
Amortization of intangible assets
56,894 55,969 51,663
Amortization of costs capitalized to obtain revenue contracts
4,056 3,342 2,563
Provision for expected credit losses 778 930 -
Amortization of debt issuance costs
653 1,085 2,760
Share-based compensation expense 51,355 30,550 22,761
Deferred income taxes
464 23,630 1,905
Loss on disposal of property and equipment 102 - 678
Gain on change in fair value of earnout - - (162)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(2,183) (443) (7,005)
Prepaid expenses and other assets
(5,655) (7,007) (2,265)
Accounts payable
2,435 3,170 (1,564)
Accrued liabilities
(1,912) (2,514) (2,281)
Deferred revenue
(771) (69) 1,922
Net cash provided by operating activities 77,802 67,964 74,587
Cash flows from investing activities:
Capitalized software additions
(7,092) (9,250) (8,228)
Purchases of property and equipment
(367) (943) (1,136)
Return (payment) of escrow deposit
- 30,000 (30,000)
Funds received in connection with former business combination - 1,219 -
Funds paid in connection with former business combination - (1,219) -
Acquisition, net of cash acquired - Beanstalk Networks LLC - 326 (61,830)
Acquisition, net of cash and restricted cash acquired - StreetShares, Inc. - - (23,137)
Net cash (used in) provided by investing activities (7,459) 20,133 (124,331)
Cash flows from financing activities:
Repurchases of common stock (104,847) (61,171) (3,375)
Excise taxes paid on share repurchases
(403) - -
Proceeds from exercise of stock options 6,885 2,373 211
Proceeds from employee stock purchase plan 1,807 1,679 1,777
Taxes paid related to net share settlement of restricted stock units (5,886) (1,667) (206)
Principal payments of debt (4,660) (4,350) (3,263)
Proceeds from debt issuance
50,000 - -
Payments of debt issuance costs (840) - -
Payments of deferred offering costs (75) (300) -
Payment of Regulation A+ investor note - - (3,265)
Net cash used in financing activities (58,019) (63,436) (8,121)
Net increase (decrease) in cash and cash equivalents
12,324 24,661 (57,865)
Cash and cash equivalents, beginning of period 80,441 55,780 113,645
Cash and cash equivalents, end of period $ 92,765 $ 80,441 $ 55,780
MERIDIANLINK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2024 2023 2022
Supplemental disclosures of cash flow information:
Cash paid for interest
$ 37,958 $ 37,018 $ 21,348
Cash paid for income taxes
690 2,522 1,343
Non-cash investing and financing activities:
Shares withheld with respect to net settlement of restricted stock units 5,886 1,667 206
Initial recognition of operating lease liabilities 623 - 3,791
Initial recognition of operating lease right-of-use assets 592 - 3,047
Excise taxes payable included in repurchases of common stock 561 377 -
Share-based compensation expense included in capitalized software additions
265 303 311
Purchase price allocation adjustment related to income tax effects for StreetShares acquisition - 1,132 -
Purchase price allocation adjustment for Beanstalk Networks LLC acquisition - 274 -
Purchases of property and equipment included in accounts payable and accrued liabilities 2 80 72
Costs related to shelf registration on Form S-3 included in accrued liabilities - 75 -
Regulation A+ investor note assumed in business combination - - 3,265
The accompanying notes are an integral part of the consolidated financial statements.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 - Summary of Significant Accounting Policies
Basis of Presentation
The 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 amounts within the prior periods’ consolidated statements of cash flows have been revised to conform to the current period presentation. Depreciation, amortization of intangible assets, and amortization of costs capitalized to obtain revenue contracts were revised to be shown separately as adjustments to reconcile net (loss) income to net cash provided by operating activities. The revisions had no impact on the net cash provided by operating activities and did not change other amounts reported within the consolidated balance sheets, statements of operations, or statements of stockholders’ equity.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses. Certain items subject to such estimates include the fair value of acquired intangible assets; the capitalization of software development costs; the useful lives of long-lived intangible assets; impairment of goodwill and long-lived assets; and income taxes, including the valuation allowance for deferred income taxes. In accordance with GAAP, management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantly from those estimates.
Accounting policies that most significantly impact the presented amounts within these consolidated financial statements are further described below:
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents are invested in short-term and highly liquid investment-grade obligations, which are held in safekeeping by large and creditworthy financial institutions. Deposits in these financial institutions may exceed federally insured limits.
As of December 31, 2024 and 2023, the Company did not have any customers that accounted for greater than 10% of accounts receivable. For the years ended December 31, 2024, 2023, and 2022, the Company did not have any customers that accounted for greater than 10% of net revenues.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. As of December 31, 2024, and 2023, cash consisted of checking deposit accounts and demand deposit accounts. As of December 31, 2023, cash equivalents included $66.8 million held in a money market fund, and none as of December 31, 2024.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Accounts Receivable and Allowance for Credit Losses
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 on the accompanying consolidated statements of operations.
Property and Equipment
The Company records property and equipment at cost or fair market value on the acquisition date, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
Asset Category Life (years)
Computer equipment and software 3 - 5 years
Office equipment and furniture 3 - 7 years
Leasehold improvements Shorter of the lease term or the estimated useful lives of the assets
Expenditures for maintenance and repairs are charged to expense as incurred, and major renewals and improvements are capitalized. Gains or losses on disposal of property and equipment are recognized in the period when the assets are sold or disposed of and the related cost and accumulated depreciation is removed from the accounts.
Leases
Leases arise from contractual obligations that convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. At the inception of the contract, the Company determines if an arrangement contains a lease based on whether there is an identified asset and whether the Company controls the use of the identified asset. The Company also determines the classification of that lease, between financing and operating, at the lease commencement date. The Company accounts for and allocates consideration to the lease and non-lease components as a single lease component. The Company does not have any financing leases.
A right-of-use (“ROU”) asset represents the Company’s right to use an underlying asset, and a lease liability represents the Company’s obligation to make payments during the lease term. ROU assets are recorded and recognized at commencement for the lease liability amount, adjusted for initial direct costs incurred and lease incentives received, and adjusted for prepaid or accrued lease payments. Lease liabilities are recorded at the present value of the future lease payments over the lease term at commencement. The discount rate used to determine the present value is the incremental borrowing rate, unless the interest rate implicit in the lease is readily determinable. As the implicit rate for the operating leases is generally not determinable, the Company uses an incremental borrowing rate as the discount rate at the lease commencement date to determine the present value of lease payments. The Company determines the discount rate of the leases by considering various factors, such as the credit rating, interest rates of similar debt instruments of entities with comparable credit ratings, jurisdictions, and the lease term.
The Company’s operating leases typically include non-lease components such as common-area maintenance costs, utilities, and other maintenance costs. For real estate leases, the Company has elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities to the extent that they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company’s lease terms may include options to extend or terminate the lease. The Company generally uses the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the Company will exercise those options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company’s ROU assets are included in right of use assets and the current and non-current portions of the lease liabilities are included in accrued liabilities and other long-term liabilities, respectively, on the consolidated balance sheets. The Company does not record leases with terms of 12 months or less on the consolidated balance sheets. Lease expense is recognized on a straight-line basis over the expected lease term.
The Company subleases certain unoccupied leased office space. Sublease income is recorded as a reduction of rent expense straight-line over the term of the sublease. The Company tests ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For leased assets, such circumstances would include the decision to leave a leased facility prior to the end of the minimum lease term or subleases for which estimated cash flows do not fully cover the costs of the associated lease.
Intangible Assets
Intangible assets primarily consist of developed technology, customer relationships, trademarks, and non-competition agreements, which were acquired through acquisitions. The Company determines the appropriate useful life of its intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized on a straight-line basis over their estimated useful lives.
Capitalized Internal-Use Software Costs
For development costs related to internal use software, the Company capitalizes qualifying computer software development costs that are incurred during the application development stage. Once the application development stage is reached, internal and external costs are capitalized until the software is substantially complete and ready for its intended use. These capitalized costs are amortized on a straight-line basis over the expected useful life of the software of 3 years. Costs related to preliminary project activities and post-implementation activities for developed technology are expensed as incurred. Such capitalized costs related to developed technology are included within the intangible assets balance on the consolidated balance sheets.
Capitalized Cloud Computing Arrangement Costs
The Company capitalizes certain costs associated with cloud computing arrangements (“CCA”) that are service contracts, including third party software development costs that are part of the application development stage. Capitalized costs for cloud computing arrangements are included in prepaid expenses and other current assets, and other assets on the Company’s consolidated balance sheets. Amounts capitalized are amortized as general and administrative expenses and cost of revenues on the consolidated statements of operations over 2 to 5 years beginning on the date the associated hosting arrangement is ready for its intended use. Costs related to preliminary project activities and post-implementation activities are expensed as incurred.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets, including intangible assets with finite lives, right of use assets, costs capitalized to obtain revenue contracts, and property and equipment, whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. The impairment to be recognized is measured as the amount by which the carrying amount exceeds the fair value of the assets.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include consideration of certain key factors including macroeconomic conditions, industry and market conditions, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance.
The Company first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not the fair value of its reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if the Company concludes otherwise, then it is required to perform a quantitative impairment test.
The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If however, the fair value of the reporting unit is less than book value, then an impairment charge is recorded for the difference between the reporting unit’s fair value and carrying amount, not to exceed the carrying amount of the goodwill. The Company has one reporting unit and tests its goodwill for impairment annually, as of October 1, or more frequently if circumstances indicate that goodwill may not be recoverable.
Fair Value of Financial Instruments
The Company accounts for certain of its financial assets at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
•Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
•Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 - Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The carrying amounts of most of the Company’s financial instruments, including cash and cash equivalents approximate fair value due to their high liquidity in actively quoted trading markets and their short maturities. The carrying amounts of the Company’s accounts receivable, accounts payable, accrued liabilities, and short-term deferred revenue approximate fair value due to their short maturities. The carrying value of the Company’s long-term debt is considered to approximate the fair value of such debt as of December 31, 2024, and 2023 based upon the interest rates that the Company believes it can currently obtain for similar debt, which is considered a level 2 input to determine fair value.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Revenue Recognition
Revenue is recognized upon the transfer of control of a promised service to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those services, net of sales taxes. The Company applies the following five-step revenue recognition model in accounting for its revenue arrangements:
•Identification of the contract, or contracts, with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when or as the Company satisfies the performance obligations.
The Company delivers its solutions using a SaaS model under which its customers pay subscription fees for the use of the Company’s solutions as well as fees for transactions processed. The Company’s subscription fees consist of revenues from software solutions that are governed by pricing and terms contained in contracts between the Company and its customers. The initial term of contracts with customers is typically three years, but may range from one to seven years. Customer contracts are typically not cancellable without penalty, and 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. The Company’s 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 is referred to as volume-based fees. The Company earns additional revenues based on the volume of applications or closed loans processed above its customers’ contractual minimums.
Revenue-generating activities are directly related to the sale, implementation, and support of the Company’s solutions. The Company derives the majority of its revenues from subscription fees for the use of its solutions hosted using cloud-based hosting services, volume-based fees, as well as revenues for customer support and professional implementation services related to the Company’s solutions.
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 included in the transaction price of a contract is constrained such that a significant revenue reversal is not probable. 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.
Subscription Fee Revenues
The Company’s software solutions are generally available for use as hosted application arrangements under subscription fee agreements. The Company’s software solutions consist of an obligation for the Company to provide continuous access to a technology solution that it hosts and routine customer support, both of which the Company accounts for as a stand-ready performance obligation. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. For the majority of our customers, additional fees for monthly usage are recognized as revenue in the month when the usage amounts are determined and reported. Certain of the Company’s subscription contracts are invoiced to its customers annually, and revenue is recognized ratably over the service term.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In determining whether SaaS services are distinct, we considered whether the series guidance applies to the Company’s subscription services. The Company considered various factors including that substantially all the Company’s SaaS arrangements involve the transfer of a service to the customer, which represents a performance obligation that is satisfied over time because the customer simultaneously receives and consumes the benefits of the services provided. Customer support services, forms maintenance, and subscription services are considered a series of distinct services that are accounted for as a single performance obligation, as the nature of the services are substantially the same and have the same pattern of transfer (i.e., distinct days of service). For these contracts, the Company allocates the ratable portion of the consideration to each period based on the services provided in such period.
The Company has concluded that its subscription fees related to monthly usage above the levels included in the standard subscription fee relate specifically to the transfer of the service to the customer in that month and is consistent with the allocation objective when considering all the performance obligations and payment terms in the contract. Therefore, the Company generally recognizes additional usage revenues in the month when the usage amounts are determined and reported. This allocation reflects the amount the Company expects to receive for the services for the given period.
The Company has a limited number of legacy customers that host and manage its solutions on-premise under term license and maintenance agreements. This type of arrangement is no longer sold and represents an immaterial amount of the Company’s subscription fee revenues. However, there is no planned sunset or end of life for these on-premise solutions.
Professional Services Revenues
The Company offers implementation, configuration, consulting, and training services for its software solutions and SaaS offerings. Revenues from the Company’s professional services are recognized as control is transferred to the customer, which can be either at a point in time or over time, depending on the nature of the contractual performance obligations.
In determining whether implementation services are distinct from subscription services, we considered that there is not a significant level of integration between implementation and subscription services. Further, implementation services in our contracts provide benefit to the customer with other readily available resources and the implementation services generally are not interdependent with the SaaS subscription services. Therefore, implementation services are generally accounted for as a separate performance obligation, as they represent distinct services that provide benefit to the customer apart from SaaS services.
Consulting and training services are generally considered a separate performance obligation as they are considered distinct services that provide a benefit to the customer on their own.
Other Revenues
The Company enters into referral and marketing agreements with various third parties, in which revenues for the Company are primarily generated from transactions initiated by the third parties’ customers. The Company may introduce its customers to a referral partner or offer additional services available from the referral partner via an integration with the Company’s software solutions. Other revenues are recognized in the period the services are performed, which can be either at a point in time or over time, depending on the nature of the contractual performance obligations.
Identification of Performance Obligations and Determination of Transaction Price
The Company enters into contracts with customers that often include multiple performance obligations, usually including multiple subscription and implementation services. For these contracts, the Company accounts for distinct individual performance obligations separately by allocating the contract’s total transaction price to each performance obligation in an amount based on the relative standalone selling price (“SSP”) of each distinct good or service in the contract.
The Company’s determination of SSP for each distinct performance obligation in its contracts with its customers requires minimal judgment. Solutions are generally sold at standard prices and subscriptions are generally coterminous. Therefore, it is rare that any reallocation of transaction consideration is required. The Company’s best evidence of SSP is the observable price at which products and services are sold separately to customers, which is generally the stated contract price.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Principal versus Agent
The Company evaluates whether it is the principal (i.e., reports revenues on a gross basis) or agent (i.e., reports revenues on a net basis) with respect to the vendor reseller agreements pursuant to which the Company resells certain third-party solutions along with the Company’s solutions. Generally, the Company reports revenues from these types of contracts on a gross basis, meaning the amounts billed to customers are recorded as revenues and expenses incurred are recorded as cost of revenues. Where the Company is the principal, it first obtains control of the inputs to the specific service and directs their use to create the combined output. The Company’s control is evidenced by its involvement in the integration of the partners’ services with the Company’s solutions before the partners’ services are transferred to the Company’s customers and is further supported by the Company being primarily responsible to the customers, having a level of discretion in establishing pricing, and is subject to credit loss. In cases where the Company does not obtain control prior to the transfer of services, and acts as an agent, revenue is reported on a net basis, with costs being recorded as a reduction to revenues. Agent related revenue is recorded in subscription fees revenue on the Company’s consolidated statements of operations.
Contract Balances and Deferred Revenue
The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of deferred revenue. Deferred revenue represents billings under noncancellable contracts before the related product or service is transferred to the customer. The Company records an unbilled receivable when revenue is recognized prior to invoicing.
The deferred revenue balance consists of subscription and implementation fees which have been invoiced up front and are recognized as revenue only when the revenue recognition criteria are met. The Company’s subscription contracts are invoiced to its customers annually or monthly based on the underlying contractual terms, and revenue is recognized ratably over the service term. For any fees invoiced up front for contracts with a service term that extend multiple years, the portion of deferred revenue that will be recognized beyond 12 months from the date of the financial statements are classified as long-term deferred revenue.
The payment terms and conditions vary by contract; however, the Company’s terms generally require payment within 30 days from the invoice date. In instances where the timing of revenue recognition differs from the timing of payment, the Company elected to apply the practical expedient to not adjust contract consideration for the effects of a significant financing component. The Company expects, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less. As such, the Company determined its contracts do not generally contain a significant financing component.
Costs Capitalized to Obtain Revenue Contracts
The Company capitalizes sales commissions and related payroll benefits related to its customer agreements because the commission charges are so closely related to the revenues from the noncancellable customer agreements that they should be recorded as an asset and charged to expense over the expected period of customer benefit. The Company capitalizes commissions for those involved in the sale of its SaaS offerings, including direct employees and their supervisors, as these are incremental to the sale. The Company begins amortization for a particular customer agreement once the revenue recognition criteria are met and amortizes those capitalized costs over the expected period of customer benefit, which the Company estimates to be three years. The Company determined the period of benefit by considering factors such as historically high renewal rates with similar customers and contracts, initial contract length, an expectation that there will still be a demand for the product at the end of its term, and the significant costs to switch to a competitor's product, all of which are governed by the estimated useful life of the technology. Current costs are included in prepaid expenses and other current assets, and non-current costs are included in other assets on the accompanying consolidated balance sheets.
The Company applies a practical expedient to expense costs to obtain revenue contracts as incurred when the amortization period would have been one year or less.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Research and Development
Research and development expenses are comprised primarily of salaries, benefits and share-based compensation associated with the Company’s engineering, product, and quality assurance personnel. Research and development expenses also include third-party contractors and allocated overhead. Other than software development costs that qualify for capitalization, as discussed above, research and development costs are expensed as incurred.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation and employee benefits, including share-based compensation, of sales and marketing personnel and related sales support teams, sales and partner commissions, trade show and advertising costs, and allocated overhead. Sales and marketing expenses also include amortization of costs capitalized to obtain revenue contracts, as discussed above. Marketing costs, including advertising and trade show expenses are expensed as incurred, and were $2.5 million, $1.5 million, and $1.4 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Share-Based Compensation
The Company accounts for share-based compensation by estimating the fair value of share-based payment awards at the grant date. The Company estimates the fair value of its RSUs using the share price on the grant date and estimates the fair value of its share-based options using the Black-Scholes option-pricing model. The portion that is ultimately expected to vest is recognized as compensation expense over the requisite service period.
Calculating share-based compensation expense for share-based options requires the input of assumptions, including the expected term of the share-based awards, share price volatility, risk free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used in calculating the fair value of share-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment.
The Company accounts for forfeitures when they occur. The Company has elected to recognize share-based compensation expense for service-based awards on a straight-line basis over the service vesting period. The Company recognizes compensation expense for awards subject to performance conditions using the graded attribution method over the vesting period so long as the performance measures are probable of being achieved.
Debt Issuance Costs
Debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company's debt. Debt issuance costs related to the Company’s term loan are netted against the Company's debt, and those related to the Company’s revolving credit facility are included in prepaid expenses and other current assets, and other assets. These amounts are amortized into interest expense over the estimated life of the debt using the effective interest method for the Company’s term loan and using the straight-line method for the Company’s revolving credit facility.
The Company performs an analysis on a creditor-by-creditor basis when its debt is modified to determine if the debt instruments were substantially different. In the event of extinguishment, capitalized debt issuance costs are expensed. In the event of debt modification, lender related fees are capitalized, and third-party costs are expensed.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid, or refunds received, as provided for under currently enacted tax law. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company recognizes 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.
The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized which includes (a) the tax position must be evaluated to determine the likelihood that it is more likely than not of being sustained based solely on the technical merits of the position, and if so, (b) the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The benefit from income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
The Company reports tax related interest and penalties, if any, as income tax expense. There were no material interest or penalties recorded for the years ended December 31, 2024, 2023, or 2022.
Net (Loss) Income Per Share
Basic net (loss) income per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common stock outstanding during the period, without the consideration for potential dilutive common stock.
Diluted net (loss) income per share is computed by dividing the net (loss) income attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Due to the net losses for the years ended December 31, 2024 and 2023, all otherwise potentially dilutive securities were antidilutive. Accordingly, basic net loss per share equaled diluted net loss per share for the years ended December 31, 2024, and 2023.
Business Combinations
The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Transaction costs associated with business combinations are expensed as incurred and are included in acquisition related costs on the consolidated statements of operations. The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with management’s determination of the fair values of assets acquired and liabilities assumed in a business combination. During the measurement period, if new information is obtained about facts and circumstances that existed as of the acquisition date, changes in the estimated fair values of the net assets recorded may change the amount of the purchase price allocated to goodwill. During the measurement period, which expires one year from the acquisition date, changes to any purchase price allocations that are material to the Company’s consolidated financial results will be adjusted prospectively.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”
Accounting standard update (“ASU”) 2023-07 requires enhanced disclosures about significant segment expenses and other segment items and requires companies to disclose all annual disclosures about segments in interim periods. The ASU also permits companies to disclose more than one measure of segment profit or loss, requires disclosure of the title and position of the Chief Operating Decision Maker, and requires companies with a single reportable segment to provide all disclosures required by Topic 280. The Company adopted this guidance for the year ended December 31, 2024 through providing enhanced segment disclosures within the notes to the consolidated financial statements. See Note 16, “Segment Information.”
Recent Accounting Pronouncements Not Yet Adopted
ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”
ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company for annual periods beginning after December 15, 2025, on a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”
ASU 2024-03 requires disaggregated disclosure of income statement expenses into specified categories within the footnotes to the financial statements. ASU 2024-03 is effective for the Company for annual periods beginning after December 15, 2026, interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and companies are required to apply the ASU prospectively or retrospectively. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
Note 3 - Revenue Recognition
Disaggregation of Revenue
The following table disaggregates the Company’s net revenues by solution type (in thousands):
Year Ended December 31,
2024 2023 2022
Lending Software Solutions
$ 249,329 $ 232,199 $ 208,290
Data Verification Software Solutions
66,969 71,418 79,756
Total $ 316,298 $ 303,617 $ 288,046
During the year ended December 31, 2023, the Company lowered its estimate of variable consideration by $2.3 million associated with a Lending Software Solutions channel reseller contract acquired through a past acquisition. The change in the estimate of variable consideration for that period was due to a commercial dispute with the reseller in the period, which resulted in a reduction in the amount the Company expected to receive under this contract as the receipt of this amount was no longer considered to be probable.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table disaggregates the Company’s net revenues by major source (in thousands):
Year Ended December 31,
2024 2023 2022
Subscription fees $ 264,410 $ 256,787 $ 248,864
Professional services 39,477 36,250 29,320
Other 12,411 10,580 9,862
Total $ 316,298 $ 303,617 $ 288,046
Contract Balances
The following table presents amounts related to customer contract-related arrangements, which are included on the consolidated balance sheets as follows (in thousands):
As December 31,
2024 2023 2022
Accounts receivable, net $ 34,422 $ 32,412 $ 32,905
Deferred revenue, current 17,170 17,224 16,945
Long-term deferred revenue 75 792 1,141
The balance of deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Significant changes in our deferred revenue balances during the years ended December 31, 2024 and 2023 were as follows (in thousands):
As of December 31,
2024 2023
Deferred revenue, beginning balance $ 18,016 $ 18,086
Billing of transaction consideration 315,527 303,547
Revenue recognized (316,298) (303,617)
Deferred revenue, ending balance $ 17,245 $ 18,016
Deferred revenue, current $ 17,170 $ 17,224
Long-term deferred revenue 75 792
Total deferred revenue $ 17,245 $ 18,016
Allowance for Credit Losses
A rollforward of the Company’s allowance for expected credit losses balance for the years ended December 31, 2024, and 2023, is as follows (in thousands):
As of December 31,
2024 2023
Allowance for expected credit losses, beginning balance $ 514 $ 165
Provision for expected credit losses 778 930
Write offs, net (542) (581)
Allowance for expected credit losses, ending balance $ 750 $ 514
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Costs Capitalized to Obtain Revenue Contracts
The following table represents the changes in costs capitalized to obtain revenue contracts (in thousands):
As of December 31,
2024 2023
Beginning balance $ 8,018 $ 6,539
Additions 5,550 4,821
Amortization (4,056) (3,342)
Ending balance $ 9,512 $ 8,018
Costs capitalized to obtain revenue contracts, net, current $ 4,362 $ 3,782
Costs capitalized to obtain revenue contracts, net, noncurrent 5,150 4,236
Total costs capitalized to obtain revenue contracts, net
$ 9,512 $ 8,018
There was no impairment of costs capitalized to obtain revenue contracts during the years ended December 31, 2024, 2023, and 2022.
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 December 31,
2024 2023
Prepaid expenses $ 5,598 $ 5,762
Costs capitalized to obtain revenue contracts, current
4,362 3,782
Income tax receivable 614 961
Other 399 1,069
Total prepaid expenses and other current assets $ 10,973 $ 11,574
Capitalized Cloud Computing Arrangement Costs
Capitalized cloud computing arrangement costs consisted of the following (in thousands):
As of December 31,
2024 2023
Capitalized cloud computing arrangement costs
$ 2,299 $ 1,779
Accumulated amortization
(303) (208)
Capitalized cloud computing arrangement costs, net
$ 1,996 $ 1,571
Amortization expense for capitalized cloud computing arrangement costs was immaterial for the years ended December 31, 2024, 2023, and 2022.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
As of December 31,
2024 2023
Computer equipment and software $ 7,902 $ 8,794
Leasehold improvements 2,424 2,732
Office equipment and furniture 990 990
Total 11,316 12,516
Accumulated depreciation
(9,149) (9,179)
Property and equipment, net $ 2,167 $ 3,337
Depreciation expense was $1.4 million, $1.9 million, and $2.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
As of December 31, 2024
Gross Amount Accumulated Amortization Net Carrying Amount
Customer relationships $ 343,300 $ (200,672) $ 142,628
Developed technology 96,400 (63,263) 33,137
Trademarks 24,975 (15,275) 9,700
Non-competition agreements 5,500 (2,723) 2,777
Capitalized software 36,353 (23,073) 13,280
Total intangible assets, net $ 506,528 $ (305,006) $ 201,522
As of December 31, 2023
Gross Amount Accumulated Amortization Net Carrying Amount
Customer relationships $ 343,300 $ (166,485) $ 176,815
Developed technology 96,400 (52,039) 44,361
Trademarks 24,975 (12,803) 12,172
Non-competition agreements 5,500 (1,743) 3,757
Capitalized software 28,997 (15,042) 13,955
Total intangible assets, net $ 499,172 $ (248,112) $ 251,060
For the years ended December 31, 2024, 2023, and 2022, the Company capitalized $7.4 million, $9.6 million, and $8.5 million, respectively, related to internally developed software costs.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The weighted average remaining useful lives for intangible assets as of December 31, 2024, were as follows:
Weighted Average Remaining Useful Life (in years)
Customer relationships 5
Developed technology 6
Trademarks 4
Non-competition agreements 3
Capitalized software 2
Amortization expense related to intangible assets was as follows (in thousands):
Year Ended December 31,
2024 2023 2022
Cost of revenues $ 19,255 $ 18,129 $ 15,553
General and administrative expense 37,639 37,840 36,110
Total amortization expense $ 56,894 $ 55,969 $ 51,663
The estimated future amortization of intangible assets as of December 31, 2024, was as follows (in thousands):
Years ending December 31,
2025 $ 52,490
2026 46,688
2027 43,553
2028 24,925
2029 13,327
Thereafter 20,539
Total amortization expense $ 201,522
No impairment of long-lived assets was recorded during the years ended December 31, 2024, 2023, or 2022.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Goodwill
A rollforward of the Company’s goodwill balance for the years ended December 31, 2024 and 2023 was as follows (in thousands):
As of December 31,
2024 2023
Beginning balance $ 610,063 $ 608,657
Adjustments to OpenClose acquisition date fair value - 274
Adjustments to StreetShares acquisition date fair value - 1,132
Ending balance $ 610,063 $ 610,063
During the year ended December 31, 2024, the Company used the qualitative approach to perform its annual goodwill impairment test and concluded it was more likely than not that the fair value of the Company’s reporting unit exceeded the carrying value of its net assets. No goodwill impairment was recorded during the years ended December 31, 2024, 2023, and 2022.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
As of December 31,
2024 2023
Accrued payroll and payroll-related expenses $ 8,188 $ 9,501
Accrued bonuses 6,313 6,424
Accrued operating costs 4,127 3,655
Sales tax liabilities from acquisitions 3,383 3,383
Accrued costs of revenues 2,305 2,003
User conference accrual 979 1,073
Customer deposits 795 1,302
Excise taxes payable 537 379
Operating lease liabilities - current 676 773
Other accrued liabilities 2,080 2,180
Total accrued liabilities $ 29,383 $ 30,673
Note 5 - Commitments and Contingencies
Legal Matters
The Company is, and from time to time may be, involved in legal proceedings and claims arising out of the Company’s operations in the ordinary course of business. The Company accrues estimates for resolution of legal proceedings and other contingencies when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss is reasonably estimable. Management is not currently aware of any legal proceedings or claims against it that could have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
During the year ended December 31, 2024, the Company incurred and paid $1.5 million related to the settlements of class action litigation claims.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other Contractual Commitments
The Company’s contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription arrangements used to support operations at the enterprise level. Future minimum payments under the Company’s non-cancelable purchase commitments as of December 31, 2024, are as follows (in thousands):
Contractual Commitments
Years ending December 31,
2025 $ 4,253
2026 4,684
2027 4,188
Thereafter -
Total $ 13,125
Note 6 - Debt
Debt consisted of the following (in thousands):
As of December 31,
2024 2023
Term Loan
$ 472,728 $ 427,388
Debt issuance costs
(4,128) (3,842)
Total debt, net of debt issuance costs
468,600 423,546
Less: Current portion of debt
Term Loan
4,763 4,350
Debt issuance costs
(1,085) (808)
Total current portion of debt, net of debt issuance costs
3,678 3,542
Total long-term debt, net of debt issuance costs
$ 464,922 $ 420,004
Total interest expense, excluding amortization of debt issuance costs, was $37.7 million, $37.1 million, and $21.6 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Credit Agreement
The credit agreement dated as of November 10, 2021, (as amended by the 2023 Amendment (as defined below), the 2024 Amendment (as defined below) and as may be further amended, restated, amended and restated, supplemented and/or otherwise modified from time to time prior to the date hereof the “Credit Agreement”), provided for a term loan facility (the “Term Loan”) with an original aggregate principal amount of $435.0 million and a revolving credit facility (the “Revolving Credit Facility”) of $50.0 million, inclusive of a $10.0 million letter of credit sub-facility.
On June 20, 2023, the Company entered into the Conforming Changes Amendment to Credit Agreement (the “2023 Amendment”) which established the Secure Overnight Financing Rate (“SOFR”) as the benchmark rate used in the definition of the Eurocurrency Rate for its Term Loan and Revolving Credit Facility. Under the terms of the 2023 Amendment, SOFR will be used as the benchmark rate for interest periods beginning on or after June 30, 2023. In connection with the 2023 Amendment, the Company paid $0.1 million of fees that were expensed during the year ended December 31, 2023.
On May 15, 2024, the Company entered into the Refinancing Amendment and First Amendment to Credit Agreement (the “2024 Amendment”). Pursuant to the 2024 Amendment, among other things, the aggregate principal amount of the Term Loan increased by $50.0 million and the interest rate on the Term Loan was changed. The Company accounted for the 2024 Amendment as a debt modification. The Company paid $1.3 million of fees related to the 2024 Amendment, of which $0.8 million was recorded as debt issuance costs and $0.5 million was expensed in general and administrative expense on the Company’s consolidated statements of operations during the year ended December 31, 2024.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Unamortized debt issuance costs related to the Term Loan were $4.1 million and $3.8 million as of December 31, 2024 and 2023, respectively. Unamortized debt issuance costs related to the Revolving Credit Facility were $0.2 million and $0.3 million as of December 31, 2024 and 2023, respectively. Amortization of debt issuance costs was $0.7 million, $1.1 million, and $2.8 million for the years ended December 31, 2024, 2023, and 2022, respectively, and was included in interest expense in the consolidated statements of operations.
The obligations under the 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 Credit Agreement contains customary affirmative covenants, negative covenants and events of default, including covenants and restrictions that, among other things, require the Company to satisfy a financial covenant, and restricts or limits the ability of the Company to grant or incur liens, incur additional indebtedness, enter into joint ventures or partnerships, engage in mergers and acquisitions, engage in asset sales, and declare dividends on its capital stock, subject in each case to certain customary exceptions. A failure to comply with covenants could permit the lenders to declare the Term Loan, and any then outstanding borrowings on the 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 Credit Agreement at December 31, 2024.
Term Loan
The Company is required to make quarterly payments equal to 0.25% of the aggregate original principal amount of the Term Loans, commencing with the fiscal quarter ended June 30, 2024, with the remainder due at maturity on November 10, 2028. Borrowings under the Term Loan bear interest at a variable rate, elected by the Company, equal to the Base Rate (as defined in the Credit Agreement) or Term SOFR (as defined in the Credit Agreement), plus, an Applicable Rate (as defined in the Credit Agreement) based on the Company’s Consolidated First Lien Net Leverage Ratio (as defined by the Credit Agreement), which was 2.75% at December 31, 2024. The effective interest rate on the Term Loan was 7.41% as of December 31, 2024.
Revolving Credit Facility
The Company had no balance outstanding on the Revolving Credit Facility as of December 31, 2024 and 2023. The Revolving Credit Facility matures on November 10, 2026. Borrowings under the Revolving Credit Facility bear interest, at the election of the Company, at a rate equal to the Base Rate (as defined in the Credit Agreement) or Term SOFR (as defined in the Credit Agreement) plus a SOFR Adjustment (as defined in the Credit Agreement), plus, in each case, the Applicable Rate (as defined in the Credit Agreement) based on the Company’s Consolidated First Lien Net Leverage Ratio, which was 2.75% at December 31, 2024. The Revolving Credit Facility is subject to a Revolving Commitment Fee (as defined in the Credit Agreement) based on the Company’s Consolidated First Lien Net Leverage Ratio, which was 0.50% per annum at December 31, 2024.
Future Principal Payments
Future principal payments of debt as of December 31, 2024, were as follows (in thousands):
Years ending December 31,
2025 $ 4,763
2026 4,763
2027 4,763
2028 458,439
Total $ 472,728
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 7 - Stockholders’ Equity
Common Stock
The Company filed its certificate of incorporation in the State of Delaware on July 27, 2021, whereby the Company’s authorized capital stock consists of 650,000,000 shares of capital stock, $0.001 par value per share, of which 600,000,000 shares are designated as common stock and 50,000,000 shares are designated as preferred stock.
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, and any contractual limitations, such as the Company’s credit agreements, the holders of common stock are entitled to receive dividends out of funds then legally available, if any, if the board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that the board of directors may determine.
Voting Rights
The holders of common stock are entitled to one vote per share. The Company’s shares of common stock vote as a single class on all matters relating to the election and removal of directors from the board of directors and as provided by law. The Company’s stockholders do not have the ability to cumulate votes for the election of directors. Except in respect of matters relating to the election of directors, or as otherwise provided in the Company’s charter or required by law, all matters to be voted on by stockholders must be approved by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the subject matter. In the case of the election of directors, director candidates must be approved by a plurality of the shares present in person or by proxy at the meeting and entitled to vote on the election of directors.
No Preemptive or Similar Rights
The Company’s common stock is not entitled to preemptive rights and is not subject to conversion, redemption, or sinking fund provisions.
Right to Receive Liquidation Distributions
If the Company becomes subject to a liquidation, dissolution, or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributed ratably among the holders of common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Fully Paid and Non-Assessable
All of the outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
Pursuant to the Company’s charter, the board of directors has the authority, without further action by the stockholders, to issue from time to time shares of preferred stock in one or more series. The board of directors may designate the rights, preferences, privileges, and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights, liquidation preference, sinking fund terms, and the number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of common stock, impairing the liquidation rights of common stock, or delaying, deterring, or preventing a change in control. Such issuance could have the effect of decreasing the market price of the Company’s common stock. Any preferred stock so issued may rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up, or both. The Company currently has no plans to issue any shares of preferred stock.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stock Repurchase Programs
In May 2022, the Company’s board of directors authorized a stock repurchase program to acquire up to $75.0 million of the Company’s common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares (the “2022 Stock Repurchase Program”). In January 2024, the Company’s board of directors authorized a stock repurchase program to acquire up to $125.0 million of the Company’s common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares (the “2024 Stock Repurchase Program”).
The manner, timing, and actual number of shares repurchased under the programs will depend on a variety of factors, including price, working capital needs, general business and market conditions, regulatory requirements, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934. The repurchase programs may be commenced, suspended, or terminated at any time by the Company at its discretion without prior notice.
Approximately $44.4 million (including excise taxes) of the 2024 Stock Repurchase Program was used for the stock repurchase in connection with the February Secondary Offering (defined below).
For both the 2022 Stock Repurchase Program and 2024 Stock Repurchase Program, the Company retires the repurchased shares, which automatically return to the status of authorized but unissued shares of common stock. The cost of the repurchased shares, including commissions, fees, and excise taxes are recorded as an adjustment to accumulated deficit on the Company’s consolidated balance sheets and statements of stockholders’ equity.
Secondary Offerings by Selling Stockholders and Related Common Stock Repurchase
On September 30, 2024, the Company completed an underwritten secondary offering for the sale of 6,000,000 shares of common stock by certain funds managed by Thoma Bravo, L.P., at an offering price of $21.05 per share, (the “September Secondary Offering”). In connection with the September Secondary Offering, the selling stockholders granted the underwriter a 30-day option to purchase up to an additional 900,000 shares of common stock from the selling stockholders at the offering price of $21.05 per share. The underwriter partially exercised its option to purchase an additional 650,000 shares of common stock on October 18, 2024, and the remaining portion of the option expired unexercised on October 26, 2024. The Company did not receive any proceeds from the sale of its common stock by the selling stockholders in the September Secondary Offering. During the year ended December 31, 2024, the Company incurred costs of $0.7 million in connection with the September Secondary Offering, which were included within general and administrative expenses on the Company’s consolidated statements of operations.
On February 9, 2024, the Company completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of its existing stockholders, at an offering price of $19.00 per share (the “February Secondary Offering”). The selling stockholders also granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions. The underwriters did not exercise their option to purchase any additional shares before the expiration of the 30-day window. The Company did not receive any proceeds from the sale of its common stock by the selling stockholders in the February Secondary Offering. During the year ended December 31, 2024, the Company incurred costs of $1.4 million in connection with the February Secondary Offering, which were included within general and administrative expenses on the Company’s consolidated statements of operations.
The September and February Secondary Offerings were made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276336), which was filed with the Securities and Exchange Commission on December 29, 2023 and became effective on January 8, 2024.
On February 9, 2024, in connection with the February Secondary Offering and pursuant to the 2024 Repurchase Program, the Company purchased 2,406,015 shares of its common stock from the underwriters at a price per share equal to $18.2875, which is equal to the per share price at which the underwriters purchased the shares from the selling stockholders in the February Secondary Offering, resulting in an aggregate purchase price of approximately $44.4 million (including excise taxes).
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stock Repurchase Activity
A summary of repurchased share activity during the years ended December 31, 2024, 2023, and 2022 is as follows (in thousands except share data):
Year Ended December 31,
2024 2023 2022
Total number of shares repurchased 5,328,913 3,663,732 237,641
Total cost of shares repurchased, including commissions, fees, and excise taxes $ 105,408 $ 61,548 $ 3,375
As of December 31, 2024, there was a total of $29.7 million remaining for repurchase under the stock repurchase program.
In February 2025, the Company’s board of directors authorized a new stock repurchase program to acquire up to $129.5 million of the Company’s common stock including commissions, fees, and excise taxes, superseding all prior authorized stock repurchase programs. See Note 17 “Subsequent Events” for additional information.
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, approved by the Company’s stockholders, and became effective as of July 26, 2021.
The Company had initially reserved 13,171,588 shares of its common stock for the issuance of awards under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase on January 1, 2022 and each January 1 thereafter, by 5% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. The number of shares reserved under the 2021 Plan is subject to adjustment in the event of a stock split, stock dividend, or other change in the Company’s capitalization.
The 2021 Plan provides flexibility to the Company’s compensation committee to use various equity-based incentive awards as compensation tools to motivate the Company’s workforce. The incentive awards that may be granted under the 2021 Plan include, but are not limited to, options to purchase common stock, stock appreciation rights, restricted shares of common stock, restricted stock units, and cash bonuses.
Stock Options
The 2021 Plan provides for grants of stock options which allow option holders to purchase shares of common stock in the Company. For time-based service options granted, the options vest over a period of three to four years, subject to the terms of the award agreement. The performance-based options vest upon achieving annual EBITDA targets. An option holder must be an employee of the Company at the date of these vesting conditions. The stock options are generally subject to forfeiture if employment terminates prior to the vesting date. The contractual term of the stock options is 10 years.
A summary of stock option activity during the years ended December 31, 2024, 2023, and 2022 is as follows (in thousands, except options, price per option, and term amounts):
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term (Years)
Aggregate Intrinsic Value
Outstanding - January 1, 2022
4,256,812 $ 13.05 8.44
$ 42,429
Granted
927,364 17.09
Exercised (33,359) 6.31
Forfeited (411,034) 20.86
Outstanding - December 31, 2022 4,739,783 $ 13.21 7.61
$ 19,855
Granted
- -
Exercised (304,332) 7.80
Forfeited (459,079) 22.72
Outstanding - December 31, 2023
3,976,372 $ 12.53 6.68
$ 49,670
Granted
- -
Exercised (699,027) 9.85
Forfeited (365,776) 22.04
Outstanding - December 31, 2024
2,911,569 $ 11.98 5.54
$ 28,610
Vested and expected to vest in the future at December 31, 2024
2,911,569 11.98 5.54
28,610
Exercisable at December 31, 2024
2,628,967 $ 11.04 5.38
$ 27,993
The total fair value of options that vested during the years ended December 31, 2024, 2023, and 2022 was $4.3 million, $5.9 million, and $7.6 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2024, 2023, and 2022 was $8.5 million, $3.3 million, and $0.4 million, respectively. The fair value of all time-based service options and performance-based options granted was estimated using a Black-Scholes option pricing model with the following assumptions:
Volatility - Prior to Q2 2022, the computation of expected volatility was based on a calculation using the historical volatility of a group of publicly traded peer companies. In evaluating the similarity of peer companies, the Company considered factors such as industry, stage of life cycle, size, and financial leverage. Beginning in Q2 2022, expected volatility is based on historical volatility data of the Company’s stock.
Risk-Free Interest Rate - The risk-free interest rates are based on U.S. Treasury yields in effect at the grant date for notes over the expected option term.
Expected Term - The estimate of the expected term of options granted was determined by utilizing a weighted-average approach, considering the use of the “simplified method” (where the expected term is presumed to be equal to the vesting period plus the midpoint of the remaining contractual term). The Company utilizes this method as it does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
Dividend Yield - The expected dividend yield assumption of zero is based on the Company’s current expectations about its anticipated dividend policy over the expected option term. Over the course of the Company’s history, it has not declared or paid any dividends to stockholders.
The following assumptions were used by the Company to record compensation expense for performance-based and time-based options granted during the year ended December 31, 2022. No options were granted during the years ended December 31, 2024 or 2023 (dollars in thousands, except per option amounts):
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year Ended December 31, 2022
Aggregate grant date fair value of options granted $ 7,989
Assumptions for option valuation:
Expected volatility 47.3% - 62.0%
Expected dividend yield - %
Expected risk-free interest rate 1.7% - 3.4%
Expected term of options 6 years
Maximum contractual term 10 years
Weighted average grant date fair value per option $ 8.61
The Company recognized $3.9 million, $5.3 million, and $6.7 million in share-based compensation expense related to time-based and performance-based stock options for the years ended December 31, 2024, 2023, and 2022, respectively. During the year ended December 31, 2024, the performance-based stock options were forfeited and none remain outstanding as of December 31, 2024.
As of December 31, 2024, there was $2.3 million of unrecognized share-based compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 0.97 years.
Restricted Stock Units
The 2021 Plan provides for grants of restricted stock units (“RSUs”) whereby each RSU shall relate to one share of common stock. The RSUs are subject to time-based vesting, generally over a period of one to four years, as holders provide services to the Company. The RSUs are generally subject to forfeiture if employment terminates prior to the vesting date. The cost of share-based compensation for RSUs is measured based on the closing fair market value of the Company’s common stock at the date of grant. Share-based compensation is recognized ratably over the period during which the vesting restrictions lapse.
In August 2024, the Company granted 296,544 performance-based restricted stock units (“PSUs”) under the 2021 Plan, which had a requisite service period through December 31, 2024. The fair value of the PSUs on the grant date was $6.6 million based on the closing share price of the Company’s common stock at the date of grant. Each PSU shall relate to one share of common stock upon vesting and release. The number of shares that was earned is based on achievement of adjusted EBITDA, sales, and revenue-related performance targets for the year ended December 31, 2024. The Company recognized $6.6 million in share-based compensation expense related to PSUs during the year ended December 31, 2024, as the performance measures were achieved during the relevant periods. Such shares will be released upon board-level confirmation of achievement.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of RSU activity during the years ended December 31, 2024, 2023, and 2022 is as follows:
Number of RSUs Weighted Average Grant Date Fair Value
Non-vested - January 1, 2022 1,073,529 $ 25.76
Granted 2,827,328 17.91
Vested (398,407) 25.79
Forfeited (390,619) 20.66
Non-vested - December 31, 2022 3,111,831 $ 19.27
Granted 3,639,647 16.35
Vested (1,055,665) 19.26
Forfeited (776,069) 18.78
Non-vested - December 31, 2023
4,919,744 $ 17.19
Granted
5,296,177 19.67
Vested, not released
(296,544) 22.18
Vested (2,390,289) 17.75
Forfeited (1,056,330) 17.44
Non-vested - December 31, 2024
6,472,758 $ 18.78
As of December 31, 2024, 6,472,758 RSUs are expected to vest. The Company recognized $47.1 million, $24.8 million, and $15.4 million in share-based compensation expense related to RSUs for the years ended December 31, 2024, 2023, and 2022, respectively.
As of December 31, 2024, there was $108.5 million of unrecognized share-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of approximately 2.7 years.
Employee Stock Purchase Plan
The 2021 Employee Stock Purchase Plan (the “2021 ESPP”), was adopted by the board of directors, approved by the Company’s stockholders, and became effective as of July 26, 2021.
The 2021 ESPP initially reserves and authorizes the issuance of up to a total of 810,345 shares of common stock to participating employees. The 2021 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1, 2022, and each January 1 thereafter through January 1, 2031, by the least of (i) 900,000 shares of common stock, (ii) 1% of the outstanding number of shares of common stock on the immediately preceding December 31 or (iii) such lesser number of shares of common stock as determined by the administrator of the 2021 ESPP. The number of shares reserved under the 2021 ESPP will be subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization.
All employees will be eligible to participate in the 2021 ESPP. However, any employee who owns 5% or more of the total combined voting power or value of all classes of stock will not be eligible to purchase shares under the 2021 ESPP.
The Company may make one or more offerings each year to its employees to purchase shares under the 2021 ESPP. Offerings will usually begin on each May 1 and November 1 and will continue for six-month periods, referred to as offering periods. Each eligible employee will be able to elect to participate in any offering by submitting an enrollment form at least 15 business days before the relevant offering date. An employee’s rights under the 2021 ESPP will terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.
During the year ended December 31, 2024, the Company has issued 129,925 shares of common stock under the 2021 ESPP. As of December 31, 2024, 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 $0.6 million, $0.7 million, and $0.7 million of share-based compensation expense related to the ESPP for the years ended December 31, 2024, 2023, and 2022, respectively.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Share-Based Compensation
Share-based compensation for share-based awards granted to participants has been recorded in the consolidated statements of operations for the years ended December 31, 2024, 2023, and 2022 as follows (in thousands):
Year Ended December 31,
2024 2023 2022
Cost of revenues $ 4,705 $ 3,848 $ 4,630
General and administrative 29,984 16,456 9,499
Research and development (1)
9,663 7,060 6,472
Sales and marketing 7,010 3,849 2,160
Restructuring related costs (2)
(7) (663) -
Total share-based compensation expense $ 51,355 $ 30,550 $ 22,761
______________
(1)Net of $0.3 million, $0.3 million and $0.3 million additions to capitalized software for the years ended December 31, 2024, 2023, and 2022, respectively.
(2)Relates to unvested stock compensation that was forfeited or accelerated as part of the 2024 Realignment Plan and 2023 Restructuring Plan. See Note 12, “Restructuring Activities.”
Note 9 - Income Taxes
The provision for income taxes for the years ended December 31, 2024, 2023, and 2022 consisted of the following (in thousands):
Year Ended December 31,
2024 2023 2022
Current:
Federal $ 91 $ 142 $ 385
State 353 171 1,840
Total current 444 313 2,225
Deferred:
Federal 595 15,609 1,822
State (131) 8,021 83
Total deferred 464 23,630 1,905
Provision for income taxes
$ 908 $ 23,943 $ 4,130
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Effective Income Tax Rate
The provision for income taxes differed from that computed at the federal statutory corporate income tax rate as follows for the years ended December 31, 2024, 2023, and 2022 (in thousands):
Year Ended December 31,
2024 2023 2022
Tax (benefit) expense computed at federal statutory rate
$ (6,061) $ (3,905) $ 1,139
State income tax (benefit) expense, net of federal (benefit) expense (285) (32) 1,177
Nondeductible share-based compensation (992) 127 803
Certain employee remuneration
3,703 1,842 1,038
Other nondeductible expenses 586 94 348
Valuation allowance 5,291 29,405 -
Rate change (49) 55 66
Research and development credits
(1,202) (3,606) (1,550)
Expiration of share-based compensation 209 1,037 -
Acquisition related U.S. State operating losses (30) (1,205) -
Other return to provision adjustments (262) 131 293
Tax attribute write-off - - 484
Amended return - - 332
Provision for income taxes
$ 908 $ 23,943 $ 4,130
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company regularly assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” realization standard. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the past and current trend in volatility in the Company’s business operating environment, which has impacted the Company’s current ability and expectation to generate sufficient future taxable income to fully realize its deferred tax assets, the Company continues to maintain that it is more likely that it would not be able to utilize all of the deferred tax assets as of December 31, 2024, and 2023, and, therefore, has a partial valuation allowance against its deferred tax assets. The Company’s valuation allowance was $34.7 million and $29.4 million as of December 31, 2024, and 2023, respectively.
A rollforward of the Company’s valuation allowance for the years ended December 31, 2024 and 2023 was as follows (in thousands):
As of December 31,
2024 2023
Valuation allowance, beginning balance $ 29,405 $ -
Additions
5,291 29,405
Deductions
- -
Valuation allowance, ending balance $ 34,696 $ 29,405
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
There was no such valuation allowance recorded as of December 31, 2022. During this period, the Company considered all positive and negative evidence and, based on the weight of such evidence, concluded using a more likely than not realization standard that a valuation allowance was not needed.
Deferred income taxes at December 31, 2024, and 2023 consisted of the following (in thousands):
As of December 31,
2024 2023
Deferred tax assets:
Net operating losses $ 15,171 $ 17,489
Capitalized research and development 16,028 12,466
Tax credit carryforwards 8,809 8,135
Share-based compensation 4,315 3,795
Interest expense carryover 17,059 10,117
Transaction costs 2,118 2,357
Property and equipment 175 243
Other 1,992 1,919
Total deferred tax assets 65,667 56,521
Valuation allowance (34,696) (29,405)
Total deferred tax assets, net 30,971 27,116
Deferred tax liabilities:
Costs capitalized to obtain revenue contracts
(2,434) (2,059)
Goodwill and intangible assets (39,468) (35,470)
Right of use assets, net (280) (293)
Debt issuance costs (75) (117)
Total deferred tax liabilities (42,257) (37,939)
Net deferred tax liabilities
$ (11,286) $ (10,823)
Net operating loss (“NOL”) and research & development tax credit (“R&D”) carryforwards at December 31, 2024, and 2023 consisted of the following (in thousands):
As of December 31,
2024 2023
NOL carryforwards:
Federal $ 54,789 $ 67,391
State 60,151 54,078
R&D tax credit carryforwards:
Federal 8,479 7,872
State 5,022 4,490
The Company has federal and state net operating loss carryforwards of $54.8 million and $60.2 million, respectively, at December 31, 2024, to reduce future cash payments for income taxes. The NOL carryforward amounts at December 31, 2024, and 2023 do not include $13.3 million and $13.3 million, respectively, of federal NOLs that are expected to expire prior to utilization due to a Section 382 limitation placed on certain acquired NOLs.
Of the $54.8 million federal NOL carryforwards, $12.0 million will expire from 2035 through 2037, and $42.8 million will carry over indefinitely. Of the $60.2 million state NOL carryforwards, $44.6 million will expire from 2027 through 2044, and $15.6 million will carry over indefinitely.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Uncertain Tax Positions
The Company has recorded an uncertain tax position with respect to its R&D tax credit carryforwards. There are no material penalties or interest recorded on the Federal, California, and Virginia R&D tax credit carryforwards as some reserved credits have been utilized on a tax return, but there are sufficient carryforwards to offset the uncertain portion of the credits that would potentially be disallowed, and therefore the uncertain tax position is recorded as a reduction of the deferred tax asset related to these credits. The Company does not anticipate any material changes to unrecognized tax benefit within the next twelve months that will affect the effective tax rate.
The Company has gross federal and state R&D tax credit carryforwards, before an uncertain tax position reserve, of $8.5 million and $5.0 million, respectively, as of December 31, 2024. A reserve for uncertain tax positions has been recorded against the federal and state credits of $2.6 million and $1.3 million, respectively, at December 31, 2024, and $2.4 million and $1.2 million, respectively, at December 31, 2023. The R&D tax credit carryforwards are net of a Section 382 limitation of $0.2 million placed on certain acquired R&D tax credits. The federal and state R&D tax credit carryforwards begin to expire in 2034 and 2038, respectively, and $4.9 million of state research credits have no expiration period.
The reconciliation of unrecognized tax benefits at the beginning and end of the year was as follows (in thousands):
Year Ended December 31,
2024 2023 2022
Beginning balance $ (3,535) $ (2,451) $ (1,942)
Gross decrease (increase) related to prior year positions 58 (176) 86
Gross increase related to current year positions (466) (908) (595)
Ending balance $ (3,943) $ (3,535) $ (2,451)
Included in the balance of unrecognized tax benefits as of December 31, 2024, 2023, and 2022 are $0.0 million, $0.0 million, and $2.5 million, respectively of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits as of December 31, 2024, 2023, and 2022 are $3.9 million, $3.5 million, and $0.0 million, respectively of tax benefits that, if recognized, would be offset against the valuation allowance.
The Company is subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. The Company is subject to examination for tax years back to 2021 and 2020 for federal and state purposes, respectively, and certain of its NOL carryforwards dating back to 2009 are subject to adjustment by the taxing authorities as a portion of these have been utilized in tax returns for the period ended December 31, 2022 and December 31, 2021. As of December 31, 2024, the Company had no outstanding income tax audits.
Note 10 - Related Party Transactions
In the course of its business operations, the Company maintains agreements for services from companies in which certain investment funds advised by a significant stockholder hold an investment. These services primarily relate to vehicle lookup data through an API integrated with many of the Company's products and costs related to financial and business planning software, among others. These costs are recorded as cost of revenues or operating expenses on the Company’s consolidated statements of operations, depending on the nature of the agreement or transactions. Costs associated with these agreements and transactions are considered to be related party transactions.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents the impact of related party transactions on the Company’s consolidated statements of operations (in thousands):
Year Ended December 31,
2024 2023 2022
Cost of revenues $ 1,730 $ 1,558 $ 2,128
General and administrative 301 730 824
Research and development 107 272 273
Sales and marketing - 1 92
Total related party expenses $ 2,138 $ 2,561 $ 3,317
The following table presents the impact of related party transactions on the Company’s consolidated balance sheets (in thousands):
As of December 31,
2024 2023
Prepaid expenses and other current assets
$ 77 $ 38
Total current assets $ 77 $ 38
Accounts payable $ 294 $ 110
Accrued liabilities 167 243
Total current liabilities $ 461 $ 353
Under the terms of these related-party transactions, all amounts incurred and recognized are expected to be settled within one year from the date of the accompanying consolidated balance sheets.
On September 8, 2023, the Company entered into a privately-negotiated transaction with a stockholder to repurchase 1,525,027 shares of the Company’s common stock at a price per share of $16.43, for an aggregate purchase price of approximately $25.0 million. This represented a 5% discount on the Company’s 7-day moving average price on September 7, 2023. The repurchase settled on September 11, 2023, and was completed pursuant to the Company’s previously announced stock repurchase program authorized in May 2022. There were no similar related party transactions during the year ended December 31, 2024.
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):
Year Ended December 31,
2024 2023 2022
Basic and diluted net (loss) income per share
Numerator:
Net (loss) income attributable to common stockholders
$ (29,772) $ (42,539) $ 1,294
Denominator:
Weighted average common stock outstanding:
Basic 76,270,632 80,349,895 80,454,356
Diluted 76,270,632 80,349,895 82,403,679
Net (loss) income per share:
Basic $ (0.39) $ (0.53) $ 0.02
Diluted $ (0.39) $ (0.53) $ 0.02
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A reconciliation of the denominator used in the calculation of basic and diluted loss per share is as follows:
Year Ended December 31,
2024 2023 2022
Weighted average shares outstanding for basic (loss) income per share 76,270,632 80,349,895 80,454,356
Effect of dilutive securities:
Options outstanding, unexercised
- - 1,660,412
RSAs unvested - - 188,241
RSUs unvested - - 94,332
Purchase rights committed under the ESPP - - 6,338
Weighted average shares outstanding for diluted (loss) income per share 76,270,632 80,349,895 82,403,679
The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to common stockholders because their impact would have been anti-dilutive for the periods presented:
Year Ended December 31,
2024 2023 2022
Options outstanding, unexercised 2,911,569 3,976,372 1,909,223
RSUs, unvested 6,472,758 4,919,744 743,602
Purchase rights committed under the ESPP 62,841 12,943 6,338
Total 9,447,168 8,909,059 2,659,163
Note 12 - Restructuring Activities
2024 Realignment Plan
In January 2024, the Company’s board of directors authorized an organizational realignment plan (the “2024 Realignment Plan”) that was designed to manage operating costs, enable efficient delivery on business objectives, and allow for growth in areas of strategic importance. The 2024 Realignment Plan included a reduction of the Company’s then-current workforce by approximately 12%. The Company completed the 2024 Realignment Plan during the year ended December 31, 2024. Restructuring charges of $4.0 million for severance and related costs were recognized during the year ended December 31, 2024 and reflected in restructuring related costs on the Company’s consolidated statements of operations.
2023 Restructuring Plan
In February 2023, the Company’s board of directors authorized a restructuring plan (the “2023 Restructuring Plan”) that was designed to consolidate the Company’s functions and investments to prioritize customer-centric areas of the Company’s organization, align teams with the Company’s highest business priorities, and improve efficiencies. The 2023 Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 11%. The Company completed the 2023 Restructuring Plan during the year ended December 31, 2023. 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 year ended December 31, 2023. These charges are reflected in restructuring-related costs on the Company’s consolidated statements of operations.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 13 - Business Combinations
Acquisition of OpenClose
On November 4, 2022, the Company acquired all of the outstanding stock of Beanstalk Networks LLC, doing business as OpenClose (“OpenClose”), for cash consideration of $62.8 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 provides mortgage lending technology, with a particular focus on supporting depository institutions.
Results of operations of OpenClose have been included in the operations of the Company beginning with the closing date of the acquisition. Revenue and net income attributable to OpenClose were $2.5 million and $0.2 million for the year ended December 31, 2022, respectively.
The table below summarizes the allocation of the purchase price of OpenClose based on the estimated fair value of the assets acquired and the liabilities assumed (in thousands):
Assets acquired:
Cash and cash equivalents $ 1,261
Accounts receivable 830
Prepaid expenses and other current assets 61
Goodwill 37,312
Intangible assets 29,600
Total assets acquired 69,064
Liabilities assumed:
Accounts payable 133
Accrued compensation and benefits 2,623
Accrued liabilities 2,941
Deferred revenue 603
Total liabilities assumed 6,300
Fair value of assets acquired and liabilities assumed $ 62,764
During the year ended December 31, 2023, the Company finalized the provisional purchase price allocation related to final working capital adjustments and income tax effects for the acquisition of OpenClose, resulting in changes to the acquisition’s opening balance sheet, including an increase to accrued liabilities of $0.6 million, and decrease in cash consideration transferred of $0.3 million with the corresponding net amount of $0.3 million as an increase to goodwill. The goodwill recognized is attributable to an increased customer base and expanded service capabilities. The OpenClose acquisition is treated as an asset purchase for income tax purposes; therefore all goodwill recorded is considered deductible for income tax purposes.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair value of the separately identifiable finite-lived intangible assets acquired and estimated useful lives are as follows (in thousands, except years):
Estimated Fair Values Weighted Average Amortization Life (years)
Customer relationships $ 14,200 10.0
Developed technology 9,800 10.0
Trademarks 700 5.0
Non-competition agreements 4,900 5.0
Total acquisition-related intangible assets $ 29,600 9.0
The fair value estimates for intangible assets include significant assumptions in the prospective financial information, such as revenue growth and discount rates. The fair value of the intangible assets was primarily based on the income approach using various methods such as the relief from royalty, with-or-without, and excess earnings methods.
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, subject to adjustment as defined in the purchase agreement, and $1.6 million in acquisition costs. The $30.0 million 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 a financial technology company that provides digital small business lending technology to banks and credit unions.
During the year ended December 31, 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 consolidated balance sheets.
Results of operations of StreetShares have been included in the operations of the Company beginning with the closing date of the acquisition. Revenue and net loss attributable to StreetShares were $2.9 million and $4.1 million, respectively, for the year ended December 31, 2022.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The table below summarizes the allocation of the purchase price of StreetShares based on the estimated fair value of the assets acquired and the liabilities assumed (in thousands):
Assets acquired:
Cash and cash equivalents $ 1,580
Restricted cash (1)
3,265
Accounts receivable 157
Prepaid expenses and other current assets 561
Property and equipment 142
Right of use assets 613
Deferred tax assets 10,426
Goodwill 7,952
Intangible assets 12,400
Other assets 83
Total assets acquired 37,179
Liabilities assumed:
Accounts payable 368
Accrued compensation and benefits 3,585
Accrued liabilities 738
Contingent earnout 162
Notes payable to Regulation A+ investors (1)
3,265
Deferred revenue 854
Other long-term liabilities 225
Total liabilities assumed 9,197
Fair value of assets acquired and liabilities assumed $ 27,982
______________
(1)Prior to the acquisition, StreetShares was subject to Regulation A+ of the Securities and Exchange Commission and had offered StreetShares notes to investors. The notes were scheduled to mature during various dates through 2023. Subsequent to the acquisition, during April 2022, the Company used the $3.3 million restricted cash balance to repay the Regulation A+ payable in full.
During the year ended December 31, 2023, the Company finalized the provisional purchase price allocation related to income tax effects for the acquisition of StreetShares, resulting in a reduction to the deferred tax asset and corresponding increase to goodwill in the amount of $1.1 million. The goodwill recognized is attributable to the Company’s expected acceleration of its small business lending service capabilities. The StreetShares acquisition is treated as a stock purchase for income tax purposes; therefore, of the goodwill recorded, none is considered deductible for income tax purposes.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair value of the separately identifiable finite-lived intangible assets acquired and estimated useful lives are as follows (in thousands, except years):
Estimated Fair Values Weighted Average Amortization Life (years)
Customer relationships $ 500 5.0
Developed technology 11,800 10.0
Trademarks 100 2.0
Total acquisition-related intangible assets $ 12,400 9.7
The fair value estimates for intangible assets include significant assumptions in the prospective financial information, such as revenue growth and discount rates. The fair value of the intangible assets was primarily based on the income approach using various methods such as the relief from royalty, with-or-without, and excess earnings methods.
Contingent Earnout Liability
The purchase price for StreetShares included a potential earnout that was measured over 12 months from April 2, 2022, through April 1, 2023, based on performance factors outlined in the acquisition agreement.
The contingent earnout liability was recorded at estimated fair value each reporting period using a Monte Carlo simulation based on the forecasted operating results over the earnout period, estimates for market volatility, discount rates, and the earnout formula specified in the acquisition agreement. As the fair value uses significant unobservable inputs, it is considered a Level 3 fair value measurement.
The contingent earnout liability was initially recorded in accrued liabilities on the Company’s consolidated balance sheets. The $30.0 million held in escrow as contingent earnout proceeds was not earned and was released in its entirety back to the Company during the year ended December 31, 2023.
Pro Forma Financial Information (Unaudited)
The pro forma statements of operations data for the year ended December 31, 2022 gives effect to the OpenClose acquisition, described above, as if it had occurred at January 1, 2022. 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 year ended December 31, 2022 pro forma revenue was $300.2 million and pro forma earnings reflect net losses of $0.4 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, 2022, 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.
Pro forma information for the StreetShares acquisition is not provided because its historical operating results were not material to the Company’s consolidated results of operations.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 14 - Leases
The Company leases office space and server equipment under various operating lease agreements that expire through December 2027. The Company recognizes the related rent expense on a straight-line basis over the term of each lease. Free rent and rental increases are recognized on a straight-line basis over the term of each lease.
As of December 31, 2024, the weighted average remaining lease term was 2.0 years and the weighted average discount rate was 6.7%. The Company does not have any finance leases as of December 31, 2024.
The Company also has subleases of former office spaces which expire at various dates from 2024 to 2026. Sublease income from operating leases, which is recorded as a reduction of rental expense, was $0.2 million, $0.3 million, and $0.4 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Rent expense, gross of sublease income, has been recorded in the consolidated statements of operations for the years ended December 31, 2024, 2023, and 2022 as follows (in thousands):
Year Ended December 31,
2024 2023 2022
Cost of revenues $ 512 $ 569 $ 720
General and administrative 86 68 260
Research and development 163 635 579
Sales and marketing 145 198 240
Total rent expense $ 906 $ 1,470 $ 1,799
The following table presents supplemental cash flow information about the Company’s leases (in thousands):
Year Ended December 31,
2024 2023 2022
Cash paid for amounts included in the measurement of lease liabilities $ 1,080 $ 1,323 $ 2,008
Operating lease assets obtained in exchange for new operating lease liabilities 592 - 1,033
The following table presents supplemental balance sheet information about the Company’s leases (in thousands):
As of December 31,
2024 2023
Operating lease ROU assets $ 1,095 $ 1,140
Operating lease liabilities, current $ 676 $ 773
Noncurrent operating lease liabilities 490 504
Total operating lease liabilities $ 1,166 $ 1,277
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 2024, remaining maturities of lease liabilities were as follows (in thousands):
As of
December 31, 2024
Years ending December 31,
2025 $ 681
2026 439
2027 123
Thereafter -
Total operating lease payments (1)
1,243
Less: imputed interest (77)
Total operating lease liabilities $ 1,166
______________
(1)Presented gross of sublease income. The Company expects to receive sublease income of $0.2 million in 2025, and $0.2 million in 2026.
No impairment of ROU assets was recorded during the years ended December 31, 2024, 2023, or 2022.
Note 15 - Employee Benefits
The Company has a retirement savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. Under the plan, participating employees may make elective deferrals which are matched up to specified limits by the Company. Employer matching contributions for the years ended December 31, 2024, 2023, and 2022 were $1.6 million, $1.6 million, and $1.4 million, respectively.
Note 16 - Segment Information
Description of Products and Services
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.
Measure of Segment Profit or Loss and Assets
The CODM assesses performance for its segment and decides how to allocate resources based on consolidated net income (loss) as reported on the consolidated statements of operations. The CODM uses consolidated net income (loss) in deciding whether to reinvest profits into our single segment, or into other parts of the entity, such as for stock repurchases or acquisitions. The CODM also uses consolidated net income (loss) in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a monthly and quarterly basis when making decisions about the allocation of operating and capital resources, assessing performance, and establishing management’s compensation.
The accounting policies of the segment are the same as those described in the summary of significant accounting policies. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. The Company does not have intra-entity sales or transfers.
MERIDIANLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents revenue and expense information for the Company’s reportable segment (in thousands):
Year Ended December 31,
2024 2023 2022
Revenues, net $ 316,298 $ 303,617 $ 288,046
Less:
Adjusted subscription and services
84,291 86,357 86,021
Adjusted general and administrative
40,761 36,261 34,640
Adjusted research and development
29,408 40,268 36,018
Adjusted sales and marketing
35,886 31,848 21,458
Other segment items (1)
58,140 31,492 26,276
Depreciation and amortization of intangible assets
58,252 57,829 53,982
Interest expense
38,424 38,158 24,227
Provision for income taxes
908 23,943 4,130
Net (loss) income
$ (29,772) $ (42,539) $ 1,294
___________
(1)Other segment items includes share-based compensation, restructuring related costs, expenses associated with the Company’s public offering, litigation related charges, employer payroll taxes on employee stock transactions, expenses related to material weakness remediation, debt modification expenses, and acquisition related costs. It also includes interest income and other income.
Note 17 - Subsequent Events
In February 2025, the Company’s board of directors authorized a new stock repurchase program to acquire up to $129.5 million of the Company’s common stock including commissions, fees, and excise taxes, superseding all prior authorized stock repurchase programs, with no fixed expiration date, and no requirements to purchase any minimum number of shares. Shares may be repurchased under the repurchase program through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. Any shares of common stock repurchased under the repurchase program will be retired and automatically returned to the status of authorized but unissued shares of common stock.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K.
Based on that evaluation and in light of the material weakness existing in our internal controls over financial reporting as of December 31, 2023, discussed below, our principal executive officer and principal financial officer have concluded that, as of December 31, 2024, our review controls and procedures were not effective. Notwithstanding the material weakness, our management has concluded that the consolidated financial statements fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company for the periods presented in conformity with U.S. generally accepted accounting principles.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting includes those policies and procedures that:
i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, our management used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2024 due to the material weakness in our internal control over financial reporting existing as of December 31, 2023 as described below.
During the year ended December 31, 2023, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We identified multiple control deficiencies that aggregated to a material weakness related to the design and operating effectiveness of controls over revenue as of December 31, 2023. This was primarily caused by insufficient controls over the set-up of customer contracts for billing and maintaining complete contract support that were not operating effectively. We can confirm that there has been no restatement of prior period financial statements and no change to our previously released financial results as a result of these control deficiencies.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls over financial reporting for as long as we are an emerging growth company pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012.
Remediation Plan to Address Material Weakness
Our management has taken steps to enhance our internal control over financial reporting and remediate the material weakness identified during the year ended December 31, 2023, primarily related to insufficient controls over the set-up of customer contracts for billing and maintaining complete contract support that were not operating effectively.
During the year ended December 31, 2024, we have implemented process improvements throughout our revenue cycle work stream and have designed and implemented key controls to address our highest risk areas in order to work towards remediating the material weakness noted above. We have assessed our remediation progress, and, while we have made significant progress, we continue to make adjustments to further strengthen the efficacy of internal controls over revenue. As a result, we have not yet determined that the material weakness has been remediated. We will not be able to fully remediate the material weakness until our remediation efforts have been completed and the controls have been operating effectively for a sufficient period of time.
While we believe that the measures described above will contribute to the remediation of the material weakness we have identified, we cannot provide any assurance that our remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. We are committed to continuing to improve our internal control processes and will continue to review, optimize, and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or we may modify certain of the remediation measures described above. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Except for the remediation efforts noted above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
During the quarter ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Information required by Part III, Item 10, will be included in our Definitive Proxy Statement relating to our 2025 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2024, and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Information required by Part III, Item 11, will be included in our Definitive Proxy Statement relating to our 2025 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2024, and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
Information required by Part III, Item 12, will be included in our Definitive Proxy Statement relating to our 2025 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2024, and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by Part III, Item 13, will be included in our Definitive Proxy Statement relating to our 2025 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2024, and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
Information required by Part III, Item 14, will be included in our Definitive Proxy Statement relating to our 2025 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2024, and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
1. Financial Statements
The Following financial statements are included in Part II, Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm (BDO USA, P.C., San Francisco, California, PCAOB ID# 243)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements.
2. Financial Statement Schedules
All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.
3. Exhibits
The information required by this Item is set forth on the exhibit index that precedes the signature page of this Annual Report on Form 10-K.