MeridianLink Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2025

There are 12 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Meridian Lake's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' comments, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Gianna Rotolini.

Operator

Gianna, please go ahead.

Speaker 1

Good afternoon, and welcome to MeridianLink's First Quarter Fiscal Year twenty twenty five Earnings Call. We will be discussing the results announced in our press release issued after the market closed today. With me today are MeridianLink's Chief Executive Officer, Nicholas Block President, Larry Katz and Chief Financial Officer, Elias Olmeda. Before we begin, I'd like to remind you that today's conference call will include forward looking statements based on the company's current expectations. These forward looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially.

Speaker 1

For a discussion of the risks, uncertainties and other factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and the periodic reports and filings we file from time to time with the Securities and Exchange Commission. All of our statements are made based on information available to us as of today, and except as required by law, we assume no obligation to update any such statements. Please note that other than revenue, cash and cash equivalents and cash flow from operations, all numbers in our remarks are on a non GAAP basis unless otherwise stated. A reconciliation to comparable GAAP metrics can be found in today's earnings presentation, which is available on our Investor Relations website and as an exhibit to the Form eight ks furnished with the SEC just before this call. Our earnings presentation is available for you to download and reference throughout our prepared remarks.

Speaker 1

With that, let me turn the call over to Nicholas.

Speaker 2

Thank you, Gianna. Good afternoon, and thanks for joining us today. We are pleased with our first quarter results. MeridianLink achieved $81,500,000 in total revenue or a 5% growth year over year and adjusted EBITDA of 34,800,000.0 a 43% adjusted EBITDA margin. Our quarterly results highlight our focus and success operating the business in an increasingly uncertain macroeconomic environment.

Speaker 2

Earlier today, we announced that Larry Katz, our President, will assume the role of CEO effective October 1. After six rewarding years at the helm of MeridianLink and multiple prior CEO roles, I intend to focus my time on private company boards and investment activities. This transition has been carefully planned, and I look forward to continuing to work alongside Larry and the entire MeridianLink team over the next four point five months. I have enjoyed every moment of leading this great organization since I took the helm from Timna Nguyen, our cofounder, back in late twenty nineteen. As part of these changes, Tim has transitioned to a strategic adviser role and will continue to provide Larry with a strategic insight from which I greatly benefited.

Speaker 2

Together, we have expanded the business meaningfully, growing revenue from approximately $150,000,000 in 2019 to $330,000,000 at the midpoint of our guidance for 2025. We migrated our solutions from on premise to the cloud and established our platform, MeridianLink One, as the market leader, and we grew our customer base to nearly 2,000 financial institutions and CRAs. We have built our partner marketplace to be one of the most robust in the market, and today, over 600 partners are part of our growing ecosystem. We continue to innovate across both consumer and mortgage to automate more aspects of the lending process, helping our customers drive deposit growth, speed decisioning, fuel efficiency, and ultimately enable their workforce to focus on their core differentiator, fostering long term relationships with their consumers. And we've made significant investments to transform and scale our go to market organization to deliver more value at greater speed.

Speaker 2

We've accomplished a lot over the years, but I firmly believe that Meridian Link's best days are ahead. Now, Larry will lead us into the next chapter for Meridian Link. He's an operator with deep experience in both consumer finance and SaaS and at companies that have operated at scale. He's a great cultural fit for our organization and highly aligned with our mission and values. In the last year, he had a big impact on several critical aspects of the business.

Speaker 2

First, he's brought operational rigor to many parts of our business, driving the development and prioritization of our objectives for 2025. He has improved our financial discipline and transparency, and he has further clarified our build by partner strategy. Second, he's invested the time and established strong relationships with all of our stakeholders, including customers, partners, shareholders and the team. Over the last year, he's met with many of our customers across the country and reaffirmed our commitment to both customer success and making it easier to do business with us. Just last week, Larry successfully led the company through our annual user conference, MeridianLINK Live, welcoming over 1,300 customers, prospects, partners, and teammates in attendance.

Speaker 2

He hosted our first ever customer advisory board, and the feedback was overwhelmingly positive. Throughout the week, our customers shared our excitement regarding our platform and ecosystem growth, our product roadmap and Larry's laser focus on driving better outcomes for our community banks, credit unions and credit reporting agencies alike. And third, Larry is a recognized leader in our organization. Among other successes, he has helped bring greater focus and leadership to the commercial team, which became evident through our record annual bookings and new logo momentum we achieved closing out 2024. He has also been focused on the development of our talent.

Speaker 2

He's brought in key leadership that can scale and accelerate the business to meet the opportunities ahead, including outstanding hires like Elias and our new Chief Strategy Officer, Troy Kodiola. I wouldn't have made this decision now if I didn't have the confidence that Larry is the right person to lead the next chapter. He is ready now, and I know our employees will join me in my excitement for Larry to take on this role. I'm thrilled for Interstory's journey as CEO, and I'll be there for the transition just as Tim was for me. To close, I would like to thank you, our investors and analysts.

Speaker 2

I have enjoyed getting to know so many of you throughout my tenure. I've learned from you, and I'm working hard to use your input to make myself and our company significantly stronger and better. I'm excited to stay involved with the company as a board member and significant shareholder. With that, I will turn it over to Larry.

Speaker 3

Thank you, Nicholas. First, on behalf of the Board and our nearly 700 colleagues, I'd like to take a minute to applaud Nicholas for everything this company has accomplished over the past six years under your leadership. MeridianLink is a very different business than it was when you became CEO. You transformed MeridianLink from a collection of on premise solutions into a leading cloud native loan origination platform for community financial institutions. You did a terrific job of building out our go to market team, expanding our customer base, growing our partner marketplace, and extending our product portfolio.

Speaker 3

Most importantly, you established a strong foundation to deliver long term value to our

Speaker 4

customers, partners, and shareholders.

Speaker 3

I have tremendous respect to you, Nicholas, both for what you have built and your capabilities as a leader. You have led with genuine care and appreciation for all stakeholders and created a powerful culture and an enduring legacy. Your impact on MeridianLink will be lasting, and I will miss your wisdom on a day to day basis. I'm grateful for your trust in me, and I look forward to working alongside you during your transition and then after October 1 in your continuing role as a MeridianLink board member. I'm thrilled to have the opportunity to lead this company, and I'd like to share my perspective on where MeridianLink stands today and where we are headed.

Speaker 3

Today, MeridianLink is a growing and durable business of scale with many compelling strengths. These attributes drew me to MeridianLink one year ago and continue to inspire me today. Meridian Link delivers real value to our customers. We enable community banks and credit unions to support their communities by making lending more accessible and more efficient. We are the leading digital lending platform for community financial institutions.

Speaker 3

In 2024, we processed 28,000,000 consumer loan applications and nearly $700,000,000,000 application volume. We also served 50,000,000 background checks and more than 40,000,000 credit reports. At the core of our offering is MeridianLink One, our unified cloud native platform. It stands out in the market for three key reasons. One, our platform is the most comprehensive and scalable consumer lending platform in the market today with the deepest partner network supporting a full range of loan products across the consumer debt wallet.

Speaker 3

Two, our platform's extensible, multi tenant architecture gives our customers the ability to compete with universal banks, challenger banks, and fintechs. And three, our platform has a proven track record of delivering results for customers, including loan and deposit growth, consumer acquisition growth, share of wallet expansion, and workflow efficiencies. Beyond our platform and product capabilities, we built a powerful, scalable, and effective go to market motion. As a vertical SaaS company, our land and expand model continues to prove itself effective with significant opportunity for both new logo acquisition and cross sell across our product modules. We also have something that is harder to measure but just as important, and that's a strong culture rooted in customer success.

Speaker 3

Our cofounder, Tim Nguyen, made it clear from the beginning, we only succeed when our customers succeed. That commitment is still core to who we are today. With this foundation, I'm excited to shape MeridianLink's next chapter. Today, we compete in a world that is changing quickly in which the pace of innovation has accelerated, investment has increased, and opportunities abound. We will pursue initiatives over the next several years to build on our successes as well as pursue others that represent new, forward looking initiatives that will be natural evolutions and extensions of our strategy.

Speaker 3

We've defined three strategic pillars that will guide us going forward: One, increasing our product portfolio, two, making it easier to do business with us, and three, strengthening our talent. First, we're focused on increasing the breadth and depth of our product portfolio and getting to market faster. We are committed to extending the range of our platform to meet our customers' needs through product delivery and innovation, partnerships, and acquisitions. To help lead this charge, I'm pleased to welcome Troy Cogiola as our new chief strategy officer. Troy joined us in April and brings decades of experience, including thirteen years at Ellie Mae, where he served as senior vice president of product.

Speaker 3

I'm confident in Troy's ability to take us to the next level in product execution and innovation. Two, we will make it easier for customers to do business with us. Whether our customers interact with MeridianLink through our sales, services, support, or customer success teams, the experience should be simple, seamless, and consistent. Some parts of our customer experience today are where they need to be. Others are more complex than they need to be, and we're actively working to simplify these areas.

Speaker 3

Over time, we believe this focus on customer experience will drive strong product activation, higher renewals, and ultimately increased ARR. Three, we will strengthen our talent. The marketplace is competitive, and there is increasing pressure across the industry to attract and retain talent. As a company at the forefront of digital transformation and financial services, we believe we're well positioned to attract top talent and intend to make investments to achieve our near and long term objectives. I want to highlight that while we are focused on delivering results in 2025, most of our efforts this year are about building a business that can deliver in 2026, '20 '20 '7 and beyond.

Speaker 3

We are proud of the consistency of our execution, and our strategy and investments are intentionally formulated with a long term horizon in mind. Let me close by offering a few final thoughts. MeridianLink is a great business. We have a platform our customers trust, a team that delivers and a market full of opportunity. I'm incredibly excited about what's ahead.

Speaker 3

It's an honor to lead this company alongside this executive team and nearly 700 talented colleagues. With that, let me turn the call over to Elias to talk about our first quarter business and financial highlights.

Speaker 4

Thanks, Larry, and good afternoon, everyone, and congrats on your impending promotion. Let me also take a moment to recognize Nicholas on his distinguished career and the exceptional leadership he displayed at Meridian Link. I too will miss you on a day to day basis. Turning to our results. Meridian Link achieved $81,500,000 in total revenue or 5% growth year over year and adjusted EBITDA of $34,800,000 a 43% adjusted EBITDA margin.

Speaker 4

Our quarterly results underscore our ability to manage the business amidst a progressively unpredictable macro environment. Before reviewing our financials, I'd like to provide some business updates that showcase the demand for our platform, our commitment to product innovation and our focus on customer success. In Q1, we benefited from a favorable demand environment as customers relied on MeridianLink for solutions that enhance their competitive edge. This resulted in continued healthy demand with an increased mix of larger deals, sustained cross sell momentum and increased demand for mortgage lending. Total bookings increased this quarter compared to the previous quarter and the same quarter of last year.

Speaker 4

Cross sell and upsell continue to represent the majority of our bookings and significantly accelerated year over year. In Q1, an existing MeridianLink consumer credit union with nearly $600,000,000 in assets expanded its relationship with us by purchasing MeridianLink Mortgage, our Socure Marketplace integration and MeridianLink Access. With a total of six modules on the MeridianLink One platform, this customer will achieve cross sell benefits from covering more of the consumer's ZEP wallet and improving workflow efficiencies by lending through one seamless platform. Combining Socure with Access improves the digital experience for consumers, increases application volume and reduces fraud risk. We also continue to see accelerated demand for our mortgage lending solutions in Q1.

Speaker 4

We completed 15 mortgage lending deals, up nearly 90% year over year and the highest count in over two years. Our continued momentum in mortgage highlights our fit for purpose lending capabilities for mid market financial institutions and demonstrates our right to win in this market segment. On the new logo front, we secured a bank customer with $8,000,000,000 in assets. They will utilize MeridianLink Mortgage and Mortgage Access, which supports their M and A strategy by enabling more efficient vendor consolidation through one platform. The customer recognized our platform's ability to quickly onboard new users as they continue to acquire competitors, in turn, closing more loans faster.

Speaker 4

Our customers, in many cases, are gaining market share, benefiting us as well. As Larry mentioned, customers choose MeridianLINK because we are the most comprehensive and scalable digital lending platform in the market today, and we drive a notable return on investment. By way of example, take Solarity Credit Union. We recently announced that Solarity, an existing MeridianLink consumer customer with around 50,000 members selected MeridianLink Mortgage for its ability to streamline and centralize lending. They were able to consolidate 13 different mortgage products under MeridianLink One.

Speaker 4

As of Q1, Solarity had streamlined the application to funding process, reducing processing time by approximately a third and increasing operational efficiency. With respect to product updates, we are committed to prioritizing our customers' needs in our road map. In Q1, we enhanced Meridian LinkOne to streamline deposit account applications for consumers returning to their bank or credit union. Secondary account applications make up more than 75% of deposit application volumes at many financial institutions. By streamlining the workflow and auto filling necessary data from the core, we reduced the total time for consumers to open a secondary account by approximately 70%.

Speaker 4

Our product capabilities were on full display for approximately 1,300 attendees at Meridian Link Live, our annual user conference held in Orlando last week. Customers had a great reaction to the continued progress we've made on MeridianLink access. At the user conference, we spoke to the increased depth of our product over the last year, including six new partner integrations across fraud, identity verification and credit verification to make it easy for customers to leverage value added partner capabilities to create a more seamless digital account opening process for consumers. We also added over 10 new application flows, including business account opening, home equity and bundled loan and account opening transactions. As part of our roadmap efforts, we will continue to invest in our point of sale and account opening capabilities.

Speaker 4

Overall, we are energized by the success of the conference, having achieved record attendance, generated substantial pipeline and built stronger customer relationships. In summary, we are heartened by the momentum and progress we achieved starting off this year. Now on to the financials. In Q1, revenue growth accelerated, notably in our lending software solutions. Profitability expanded and we achieved solid free cash flow conversion.

Speaker 4

Reported GAAP revenue was 81,500,000.0 a 5% growth year over year and adjusted EBITDA was $34,800,000 or a 43% adjusted EBITDA margin. We generated $40,600,000 of free cash flow or 50% of revenue and ended the quarter with 128,900,000 in cash and cash equivalents. Our Q1 total year over year revenue performance of 5% growth in terms of the revenue algorithm was as follows: one, ACV release contributed mid single digits two, price and churn were in the low single digits each and essentially offset each other and three, volumes and onetime customer down sells combined were a low single digit drag. Excluding the onetime customer down sells, volumes were a roughly neutral contributor to revenue growth. Moving to our total revenue performance of 5% growth by source.

Speaker 4

Subscription revenue, which was 84% of our total revenue, grew 4% year over year. This growth was driven by the successful activation and recognition of subscription revenue from our implemented software solutions for both new and existing customers, what we refer to as ACV release. Services revenue declined 4% year over year, primarily driven by a onetime core upgrade program that spanned 2024 and Q1 of twenty twenty five. Excluding this onetime program, services revenue growth was flat year over year. Other revenue grew 41% year over year, driven by nonrecurring items that amount to approximately 600,000 Now looking at our 5% total revenue growth by solution type.

Speaker 4

Total lending software revenue growth was 10% year over year and accounted for approximately 82% of revenue. Consumer lending revenue growth was 11% year over year accounted for 90% of lending software revenue. We are encouraged by the acceleration in our core franchise and the fact that the primary driver continues to be one of our controllables, ACV release. In addition, consumer volumes grew year over year in Q1, driven by strength in auto and a onetime benefit from what we believe has been a partial pull forward in demand driven by consumers purchasing vehicles before tariffs became effective. Mortgage lending revenue growth was 7% year over year and accounted for the remaining 10% of our lending software revenue.

Speaker 4

This is the first quarter in a year that we have seen acceleration driven by improving churn and volume uplift, primarily from refinancing. I also want to highlight a few KPIs for our lending business that demonstrate its resilience and acceleration in Q1. Total lending ARR was 204,700,000.0 and grew 7% year over year, driven by growth in both consumer and mortgage lending solutions. NRR was 106%, our highest rate since the second quarter of twenty twenty three and a great proof point of the stickiness of our customers through a difficult operating environment. We also achieved 10% year over year growth in the average lending software ARR per customer, which has reached an all time high of $135,000 This is the fourth quarter in a row of acceleration as lower value customers churn and we continue to find success with larger platform deals across both consumer and mortgage.

Speaker 4

Turning to Data Verification Software Solutions. Revenue declined 15% year over year and accounted for 18% of total revenue. This decline was driven by a 28% decrease in our mortgage related revenue, which is nearly half of DBS and was primarily impacted by the large customer down sell. As we noted in Q4, the annual impact of that renewal will be approximately 6,000,000 Moving on to our profitability. Adjusted gross profit was $60,400,000 representing a 74% margin and a 54 basis point improvement in operating leverage year over year.

Speaker 4

Our total operating expenses were $26,700,000 or 33% of revenue and increased 1% year over year. R and D expense was $7,800,000 or 10% of revenue and declined 1% year over year. Sales and marketing expense was $9,400,000 or 11% of revenue, up 2% year over year. G and A increased 1% year over year to $9,600,000 or 12% of revenue. Adjusted EBITDA was $34,800,000 a 43% adjusted EBITDA margin.

Speaker 4

This is nearly 200 basis points of improvement in operating leverage year over year and demonstrates our continued cost discipline as we work towards our longer term investments that will start in Q2 and increase in the second half of the year. Finishing with our capital position. Cash flow from operations was $42,400,000 or 52% of revenue, and free cash flow was $40,600,000 or 50% of revenue. We ended the first quarter with cash and cash equivalents of $128,900,000 an increase of $36,100,000 from Q4. I'll now turn to guidance for 2025.

Speaker 4

We do not anticipate that our Q1 volumes are purely indicative of a longer term trend, in particular as it relates to auto. We are of the view that what we likely experienced was some pull forward of demand as selected consumers sought to get ahead of the potential impact of tariffs on auto prices. We expect the net impact of this pull forward on the year to be neutral because with tariff related price increases, prices should temper demand in future quarters. Ongoing conversations with our customers, recent economic data and the potential impact from tariffs point to an increasingly uncertain environment for the consumer in 2025. As a result of that uncertainty, our 2025 outlook remains unchanged at this time.

Speaker 4

Once we are through the second quarter and assuming greater clarity on the impacts of tariffs and the macroeconomic environment, we may provide an update at that point. Total GAAP revenue is expected to be between $326,000,000 and $334,000,000 for 2025 compared to $316,300,000 for the full year 2024. This represents an estimated increase of three to 6% year over year. To provide more color on how revenue will trend by solution type at the midpoint of our guidance, we expect consumer lending will grow approximately 7% in 2025, driven by releasing ACV at a steady pace. In a higher for longer environment, consumer volumes are expected to be broadly flat year over year.

Speaker 4

We expect the mortgage market to contribute approximately 18.5% of revenue for the full year 2025. On the non mortgage side, we expect modest growth year over year in data verification revenue. I will now describe our 4% total revenue growth at the midpoint of our guidance in terms of the revenue algorithm. In this uncertain market, we are staying focused on the controllables. We have solid visibility into the drivers of our revenue, such as ACV release, churn and price.

Speaker 4

As I mentioned, volume growth is less certain, and we are expecting a modest deceleration in the back half of the year. With that, one, we expect ACV release to continue contributing mid single digits and to be the single largest driver of our revenue growth in 2025. '2, we expect price to continue to offset churn for the full year. Three, we expect that volumes and the DBS customer renewal combined will be a low single digit headwind. Excluding the customer down sell, total volumes across all of our products will be slightly positive year over year and a broadly neutral contribution to revenue growth.

Speaker 4

Now turning to the adjusted EBITDA guide. Costs are another factor we are focused on controlling. We are strategically reinvesting in our product road map and go to market team this year to drive future growth. For the full year 2025, adjusted EBITDA range is expected to be between 131,500,000 and $137,500,000 representing adjusted EBITDA margins of approximately 41% at the midpoint. While the midpoint of our guidance implies a 41% margin, we are not changing our longer term target of 40%.

Speaker 4

This is an instance where the timing of long term investments can fluctuate. Nonetheless, we remain committed to such investments as the current environment presents an excellent opportunity to ready the business for what we see as an attractive growth runway ahead as cyclical headwinds shift to tailwinds. To provide more clarity on the shape of the year, we anticipate seasonality in our total revenue throughout 2025 to be broadly in line with the seasonal pattern we saw in 2024. MeridianLink's high percentage of subscription revenue and strong quarterly ACV release gives us confidence in our annual growth expectations. We continue to expect our expenses to be impacting by the timing of investments that will start in Q2.

Speaker 4

These will ramp up in the second half and there will be modest contraction in margins. We expect both R and D and sales and marketing as a percentage of revenue will increase approximately 100 bps for 2025 compared to 2024 as we invest in our product road map and go to market capabilities. We view these incremental investments as preparing the company for growth in the years ahead. As a result, we expect adjusted EBITDA margins to be highest in the first quarter before slightly declining in the second half of the year, exiting Q4 at a run rate margin slightly below 40%. We continue to manage the business to eventually become a Rule of 50 company and are investing appropriately.

Speaker 4

I would note that based on Q1 results, we are a Rule of 48 company. Finally, I'd like to reiterate how resilient the company has been through another quarter, all thanks to the outstanding effort of our team. Moving forward, we are remaining focused on strategically investing in and building a business for scale in 2026 and beyond. With that, Nicolas, Larry and I are happy to take any of your questions, and I'll turn it over to the operator. Thank you.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Session. Your first question comes from Alex Sklar from Raymond James. Please go ahead.

Speaker 5

Great. Thank you. Larry, congratulations on the, promotion new role. Maybe just starting with you, you laid out some changes you're gonna be embarking on kind of as part of this next chapter, and I just wanted to to get some more color. Is this give us more kind of an evolution on some of the things you've already been working on the last couple of years?

Speaker 5

Are these brand new initiatives that you're going to put into focus over the next couple of years? How meaningful are these changes kind of in aggregate? Thanks.

Speaker 3

Hey, thanks, Alex. It's Larry. Look, first of all, I'm excited to take on the role. And I would I view this as a continuation of our strategy, no real change. But there is a bit of focus that I'm bringing in my comments.

Speaker 3

Look, we've a really strong and durable business. And over the past year that I've been here working with Nicholas and the team, I've been focused on bringing discipline to the business and accelerating growth in the business. And this is what I'm highlighting are really strategies to drive acceleration and progress and momentum in the business around how we sell, how we go to market, how we deliver product and how we deliver our services. And so I mentioned a few of the areas that I'm focused on around products and breadth and depth of our product portfolio and product execution, and we have been working on that over the past year as well, and we'll continue to be focused on that. Around making it easier to do business with us, I've talked about the customer journey in the past, and we'll continue to bring focus to how we show up with the customer and listening to the customer voice.

Speaker 3

A good example of that was the Cab that we talked about just hosting this past this last week. And then strengthening our talent, you've seen some of the additions that we brought to the team, Elias and now Troy. And but it's not just around bringing in new talent. It's also around supporting our existing talent and helping them develop their own skills and experiences to operate at this larger scale that we have today, so continue to invest in our own team. So these are all strategies that I think are super important to our ability to scale and compete going forward.

Speaker 3

And we've been working on them for the past year, and we'll continue to.

Speaker 5

Okay. Great. Great color there. And maybe a follow-up either for you, Larry or for Elias. Just in terms of the backlog, and you called out 1Q bookings that exceeded Q1 of last year and Q4 of last year.

Speaker 5

I know you've got high visibility on ACV release. But just given some of the increased macro variability, how are you thinking about the demand backdrop and the ability to replace that mid single digit ACV release that you laid out for this year?

Speaker 3

Yes. We are, look, our this is Larry again. Our pipeline continues to be strong and healthy, and we feel really good about that. The demand environment continues to be robust. Demand across the platform, we talked about it, both cross sell demand, new logo demand, mortgage demand, highlighted.

Speaker 3

So we do feel good about it. When I think about the macro environment that we're operating in, we are seeing a bit of softness at the top end of the funnel. Hard to know if that's macro related or not, but we're watching that carefully. And we have not yet seen any, Bill, changes in our sales cycles. As we talk to our sales leaders, we don't hear about that directly.

Speaker 3

But it's reasonable to expect that, that could happen given the uncertainty and these investments that our customers are making. I think we'll see more it's reasonable to expect that we could see a little more softness in new logo because switching platforms is a bigger lift than cross sell. So we're watching that carefully as well, but we haven't seen any changes as of yet.

Speaker 6

All right. Great. Thank you all for the color.

Operator

Thank you. Your next question comes from Saket Kalia from Barclays. Please go ahead.

Speaker 7

Okay, great. Hey, guys. Thanks for taking my questions here. And congrats, Nicholas and Larry, on your new respective roles. Nicholas and Larry, maybe maybe for for other of you.

Speaker 7

I'd love to dig into the consumer lending business specifically a little bit just given the the growth, the acceleration there. And maybe zoom in a little bit on new business. And Larry, you touched on this a little bit in your prior response, but just to ask it specifically for consumer lending. Can we just talk a little bit about the new business environment there a little bit? And maybe zooming out, do you think the profile of the customer there is changing at all, whether it's banks versus credit union or big versus small?

Speaker 7

Any color on whether that profile is changing as you continue to gain share?

Speaker 3

Sure. Hey, Saket, thanks. It's Larry again. Thanks for congratulations. So on Consumer, first of all,

Speaker 6

a lot of the growth has

Speaker 3

been and Elias can build on this, but a lot of the growth is being driven by ACV release, right? That's really what's showing up there. And that's both cross sell and new logo. To your question around new logo demand, look, it continues to be solid in the consumer space. We continue to have what we think is the most comprehensive and most complete solution out there as a platform.

Speaker 3

And as I was talking to customers last week at Live, it is recognized to be a leader in the space and to really be mission critical. And so it's feel good about our position there and the demand for consumer. I think in terms of the size of the clients that what I'd point to is the average ARR, as Elias talked to, is going up. And I think that's really just the power of demonstrates the power of the platform and how the value that we're delivering and what customers are willing to pay for that. So I think that's a part of it.

Speaker 3

We are seeing some additional success in larger AUM clients, and we talked about some of those on the call as well. And I think that just speaks to the scalability of the platform as well. So yeah, so anything you want to add either, Nicholas or Lana?

Speaker 8

No. Well, let me just add that, of course, it was a tremendous quarter for the consumer, right, hitting 11% year over year. And just to echo, we're having success in all the areas that Larry mentioned, that we're seeing that really in ACV release being the leader in driving that growth. But also on the back of some of the volumes that we saw, particularly in automotive, there was a slight you know, we we we benefited from, you know, some some volume improvement as as part of our revenue algorithm. So, really, really nice quarter in particular for consumer, but but for our, lending business in general.

Speaker 7

Yes. Absolutely. And actually, Elias, maybe for you just to follow-up on that. And in a similar vein, just on the consumer business specifically, I guess, how do you sort of think about disaggregating this quarter's 11% growth in terms of, don't know, maybe like a same store sales metric, right, like volume growth from existing customers versus, you know, new customer contribution slash ACV release. Is there a way that you kinda have us think about that to map back to that 11?

Speaker 8

Yeah. I mean, the single ACV release is is really, it it's one of two things. It's either new customers, new logos that we are bringing on board or existing customers who are expanding, their relationship with us. And so that that is, you know, what's driving the ACV release, which was the majority of what we were able to to achieve in the quarter. So that I would I would consider, you know, if you wanna think about that as as new versus old, that's the way to think about, you know, new.

Speaker 8

That and that's not all volume driven. It's mostly driven by minimums, but but nonetheless, that's new customers. And then as I I alluded to earlier, there was a you know, we had an uptick, from from volumes, and that's primarily, you know, our existing customers and volume that's being driven from their operations that is flowing through for revenue from us. Think of that really as volume that is piercing the minimums and that we are getting some upside on.

Speaker 7

Very helpful. Thanks, guys.

Operator

Perfect. Your next question comes from Nick Cremo from UBS. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking my questions, and congrats on the promotion, Larry. And, Nicholas, congrats to everything that you accomplished at Meridian Bank as CEO over the last, six, seven years. Larry, first question for you. So now that you've been with the company for a little over a year and just been looking out over the next few years, can you just put a finer point on where you see the most opportunity to invest in the business organically just in terms of the breadth and depth of Meridian Lake's product portfolio?

Speaker 6

Thanks.

Speaker 3

Yes. Absolutely. Thanks, Nick. Look, as I talked about, right, I think, let me talk about kind of our buy, build partner strategy here. Right?

Speaker 3

One of the changes that we've made with Troy coming in is really pulling together buy, build and partner under one leader. And I start there because that's really the continuum of capital allocation. So it's not just organic, but it's also partnership and it's also M and A that we're thinking about. And look, I think we are there are a number of areas where we're going to continue to invest. We're going to continue to invest in digital interfaces, both directly and via partnership.

Speaker 3

So that means digital point of sale. That means workflow digital interfaces. And we spent a lot of time talking about Access, which is our organic point of sale at Access last week, and that will continue to be an area of investment, which we think is well fit for a lot of our customers. We will continue to invest in automation in the platform. And we talked about areas last week around things like rapid account opening, ninety second account opening.

Speaker 3

Elias talked about the secondary account pickup. We talk about things like touchless credit card lending. Those kind of initiatives that drive automation and efficiency and, ultimately, conversion for our customers are areas of focus. We will continue to invest in partnerships and ease of integration with the platform. We've got a large portfolio of partnerships, and we'll continue to invest in those partners because, look, we can't we don't intend to do everything ourselves.

Speaker 3

Some we will do ourselves and some we'll do through partnership. And so the ease of integration and monetization of the partnerships is critical. And then the last one I'd highlight is AI. AI is going to be we're excited about the opportunities across the business in AI. And from a product perspective, we think it's going to be a real enabler both for consumers as well as for workforce.

Speaker 3

And we can see opportunities ranging from AI powering doc capture in a much more simple way, demand generation strategies, decisioning and underwriting collections, etcetera. All of those, we think, are going to be meaningfully changed with AI. And that's going to drive efficiency for our customers. That's going to drive a velocity for our customers, meaning from conversion from the front of the applications through funding, which ultimately creates revenue for the customers. And it's going to drive it's going to deliver just better customer experiences and customer outcomes, which allows our clients, our customers to compete with universal banks and challenger banks and fintechs, which is and that competition is growing every day.

Speaker 3

So those are the areas that we're focused on, and we'll share more as Troy gets in the seat and he develops his buy, build partner strategy.

Speaker 6

Understood. Thanks for all the color, Larry. And for my follow-up, I had a question for Elias. I was hoping that you could just put a finer point on what your expectations are for the auto lending vertical in 2025, just given the uncertainty that part of the business is facing from any potential tariffs. So are you assuming that business grows in line with the rest of consumer lending for the year?

Speaker 6

And what did it grow in Q1? Thank you.

Speaker 8

Yes. We don't break out the individual components of consumer. But as I mentioned, grew 11% in the quarter. And as we're not changing our guide for the year, I would point you to the fact that we're assuming 7% year over year growth. I acknowledge the uncertainty on the auto front.

Speaker 8

We did see some improvement there in terms of volumes. But again, we're assuming that, that is mostly a pull forward of stuff that we would have seen in Q2 and Q3. And so we are being, I think, prudent in the face of the significant uncertainty. And since we just provided guidance, which I think remains relevant just eight weeks ago, we're going to hold. And if we have something more to give you, we'll look forward to doing so in Q2.

Speaker 6

Understood. Thank you.

Operator

Thank you. Your next question comes from Koji Ikeda from Bank of America. Please go ahead. Mr. Ikeda, your line is open up.

Speaker 9

Hey, sorry about that. This is Natalie on for Koji. Thanks for taking my question. Larry, congrats on the promotion. You guys talked about improving churn in the mortgage business for the first time in a few quarters, which is great to hear.

Speaker 9

What would it take for you to say that retention has stabilized or inflected positively? And in the current environment, could you see that being a trend soon, or would it be a little premature?

Speaker 8

Yeah. Thanks for the question. I mean, have seen retention improve. Whether that's a trend or not, not going to venture a guess at this point. What I would say, which is line with what we have said with, prior quarters, is that, you know, the customers that we are, losing tend to be, you know, very much at the small end of the scale.

Speaker 8

Similar to what I said last month, you know, we classify them within buckets, and the average of all of the customers we lost was about 40,000. But over over half of those had, you know, ARR of less than 10. So as you can see, you know, these aren't materially sized customers. This is and these are just institutions that we don't think are able to either take advantage of the full benefits that the platform brings just have decided to drop for one reason or another. I guess what I would say is, it's part of the reason why we're seeing ARR grow, and we feel good about where the business is trending and where churn is trending in the quarter.

Speaker 9

Got it. Okay. Thank you. That's all for me.

Operator

Thank you. Your next question comes from Scott Wartsow from Wolfe Research. Please go ahead.

Speaker 10

Hey, good afternoon guys. Thank you for taking my question. I wanted to go back to the comments you made about the mortgage demand I'm wondering if you can maybe unpack that a little more and talk about the drivers of the increased demand. And with the number of mortgage wins up 90% year over year, how much of that is due to higher demand versus better internal sales execution also?

Speaker 3

Thanks. Scott. It's Larry. I'll start and Elias can follow on. Look, we have a really strong mortgage offering.

Speaker 3

And we have a we believe we've got the right to win in the mid market community banking and credit union space. We've got a terrific price value equation there, and I think that's showing up in our win rate. We also have invested in in in our sales team, and I think we're really having strong success across the board on our on on mortgage run rates because of the strength of that team. So I think it's it's both of them. You know, I think that there's also a macro here, and a competitive dynamic.

Speaker 3

And the macro is that, you know, at some point, we're at lows in the mortgage market, but we know that at some point, that will turn. And the smart players out there are looking ahead and saying this is the right time to invest. It's hard to invest when going 100 miles an hour. So this is the right time to make some of those transitions, and I think we're seeing the impact of that. And I think we're also seeing some dislocation in our competitive set as well, whether it's via changes that others are making or just aging platforms.

Speaker 3

And so there's a real interest in our platform, and that's why you're seeing the positive trend.

Speaker 8

Yes. Would just add to that, that in the quarter, flipped we grew nicely in the quarter, and again, mostly driven by ACV release, but we also there was some really nice impact from volumes in the mortgage market, primarily from refi. And we've been able to really take advantage of that. And if the market continues to perform and we're able to be continue to be successful in the marketplace, I'm hoping that this is the beginning of a good trend, but too early to specifically call that out.

Speaker 10

Got it. And then just as a follow-up, I wanted to see if you can talk about your appetite for M and A. In this environment right now, you built a nice cash position on the balance sheet, leverage I think at around 2.5 turns now. So just wondering if you can talk about M and A appetite at these levels here.

Speaker 3

I'll start again, Larry and Elias can pick up. Look, from since I joined, we've been talking about the opportunity in M and A, and it's core to our strategy. We've done a number of deals in the past, but we have to find the right deals at the right price. And of course, they got to be willing to sell as well. So we have to be patient and disciplined around it, which we are.

Speaker 3

So but when we think about the M and A strategy, and think we've talked about this in prior calls, there's kind of three concentric circles around our business. One would be just tuck ins to the platform, and that would likely be, you know, fishing within our partnership pool, or or businesses that we know well because we we work with them and they enhance the the the the core LOS. The second would be, you know, near adjacencies similar, related to the LOS business, but maybe a circle out from just plug ins. And then the third would really be transformational deals, and we look at them all the time. And I'll let and I think we do have firepower, but I'll let Elias talk to the balance sheet.

Speaker 8

Yes. Mean, our as you well point out, we have a strong balance sheet. I mean, we have almost $130,000,000 of cash. We have all of our capacity under our revolver. You can see from our from the quarter, we had a very strong quarter from a free cash flow perspective.

Speaker 8

And so, you know, there's there's lots of room for us to do deals that could, you know, without having to go tap external capital that could reach, you know, possibly up to $200,000,000 That being said, if we were to do something larger, which I'm not handicapping that, I'm merely providing some color, there's always we're in a good position to obtain leverage and foreign capital. So there's lots of activity. We continue to look at things. We continue to look at things in a very disciplined manner. We think prices, have, you know, are are high.

Speaker 8

For the right deal, we may reach, but we are being disciplined and thoughtful about, how we approach this as we evaluate every opportunity that comes our way. And there are many.

Speaker 3

Great. Thanks, guys.

Operator

Thank you. Your next question comes from Parker Lane from Stifel. Please go ahead.

Speaker 6

Hi. This is Matthew Kickert on for Parker. Thank you for taking my questions. First, congratulations to Nicholas on the long tenure as CEO and also to Larry for the promotion. My first question, I'm curious, so as the nonmortgage lending improves, are there dynamics that would delay the revenue recognition at all similarly to mortgage, the volume minimums there?

Speaker 6

Or would you see revenue bounce back more quickly, in the non mortgage segments in a better lending environment? Thank you.

Speaker 8

Yeah. I I guess I would I would say a couple of comments. On the on the consumer side, you know, there are two items that, you know, work to, at at times, limit our ability to recognize all of the revenue associated with volumes, and I've talked about these in the past. So one is just simply global minimum. So our customers are subject on the consumer side to global minimums related to all of their products.

Speaker 8

So even though you might have a particular product do well in the quarter, their total product stack needs to do well for them to pierce their minimums. So if one product goes down, that offsets improvement in a particular product. So you have to keep that in mind. And the second is that as we are having success with ACV release and as we are having success cross selling into our customer base, there is a slight drift in our minimums upward. So all of that is to say that the rate at which our consumer business needs to grow has increased for us to recognize some of that revenue.

Speaker 8

That doesn't mean we don't. We recognized a few points in the quarter, but that is different and distinct from our mortgage business where it is just one minimum, one product. And as those customers pierce that, we we recognize that that revenue.

Speaker 6

Okay. Thank you for that. And then and secondly, I know you're focused on investing in both the go to market and the product throughout the remainder of this year. I'm wondering if you could detail specific areas of the go to market that you're looking to invest in more and if you're seeing any initial impact from these changes so far in 2Q.

Speaker 3

Sure. It's Larry. I think we talked about this a bit last quarter as well. We feel good about the size of our of our of our quota carrying Salesforce. On the on the sales market, we've we've been investing in a couple of things.

Speaker 3

One is sales sales engineering and sales consulting. So so helping, existing and new customers really understand the value of the platform, understand how they can get the most out of the platform, and architect that, from the beginning of the sales process. And I think and and and so we've we've invested there and are starting to really get some great positive feedback there. Probably a little early to call, you know, to to to wins there, but but building momentum there, and and and I saw that and felt that at live. The second is in some of our demand generation, investments and and strategies to to find top of the funnel, and that's we're swimming upstream there a little bit against more challenging macro, but we will I expect that we will see benefits there, and it's certainly a worthwhile investment.

Speaker 3

That's about being in front of our customers prospects when they are in market, and and when they're looking at opportunities. And we've identified a number of strategies to to to to be more, present and current with them, and and I'm optimistic about the opportunities there.

Speaker 6

Terrific. Thank you.

Operator

Thank you. Your next question comes from Mark Feldman from William Blair. Please go ahead.

Speaker 11

Hi, guys. Thanks for taking the questions on for Chris today. And just wanted to extend the congratulations on all the leadership changes going on. And I guess my first question is, you know, you talked about the deposit account opening application, and all the upgrades you're making there. Could you just put a finer point on the opportunities associated with that and how that can help you win having a differentiated offering with your customer base.

Speaker 3

Yeah. Sure. Look, account opening has always been core to the offering. So it's always been very close to lending. And when you open a loan account, open a deposit account at the same time, which ultimately strategically is important to our customers because that's

Speaker 5

how they build they build

Speaker 3

their customer base and cross sell around it. With the generational changes that we're seeing, you know, in the larger market where we're shifting to, you know, Gen X and millennials and Gen Y, who are all very digitally savvy and digitally native customers, the digital applications and omnichannel account opening is really core to their success. And so our investment around access is about a more modern digital omnichannel, set of set of capabilities that that that supports them. And and we think that's we've we've we've had account opening capabilities. We're we're just investing to improve those and accelerate those and make those more seamless and elegant and efficient and customer friendly.

Speaker 3

And that's really what our investment strategy is. We also open our what we believe access is going to be very relevant to the majority of our customer base. For the more complex implementations, there are a number of other LOSs or point of sorry, point of sales that are that we integrate to as well, and those are always options. And we want to be there to support our customers as they for whatever choices they need to make. But we think the integration, the seamless integration of our account opening with our LOS is really differentiated.

Speaker 3

And both from an implementation perspective, a data perspective, security perspective, and also just ease of use for the customer. So we think it's important and will continue to be important.

Speaker 11

Got it. No. Thank you. That's very helpful. And I guess, second question here.

Speaker 11

Appreciate the expectations, given provided around churn. Just wanted to see if there's any way to break out the components of churn that are related to industry m and a. Just given consolidation, a lot of what we're hearing is increases in industry consolidation given the, you know, potentially softer regulatory landscape.

Speaker 8

Yeah. We don't break that out. We may consider that. But at this point, we don't break that out or provide any further detail on that.

Speaker 3

And maybe beyond that, just the numbers as Elias is talking to, just this from a regulatory perspective, because I think you're also asking about the kind of what's going on in the macro and how does the regulatory environment impact us. I I would expect that there will continue to be consolidation in the space. And if there was there there's a a more accommodating regulatory stance that there will consolidation, I would expect, will accelerate. You know, our experience is that a a lot of the acquirers are customers of ours, and that actually is a tailwind for us because it's no surprise that the larger institutions who are the acquirers, they also invest in technology, and they're more able to scale via acquisition. And so we tend to win in those kind of deals.

Speaker 3

So we're watching it carefully, but I'd expect it to be a positive for our business.

Speaker 11

Great. Thanks for taking the questions.

Operator

There are no further questions at this time. I will now turn the call over to Nicolas for closing remarks. Please go ahead.

Speaker 2

Thank you, operator. As we wrap up, I know you'll join me in congratulating Larry as our incoming CEO. I know that he will continue to lead and accelerate our growth strategy and bolt on the trust placed on us by our customers, partners and the team. Speaking of the team, I want to thank everyone at MeridianLink for a solid Q1 performance. I'm consistently impressed by our employees' dedication to innovation and customer success.

Speaker 2

I'm sure that the grid consistency and creativity as demonstrated will undoubtedly continue in the years to come. Thank you.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Key Takeaways

  • MeridianLink reported $81.5 million in Q1 revenue (+5% YoY) and $34.8 million adjusted EBITDA (43% margin), generating $40.6 million in free cash flow (50% of revenue) despite macro uncertainty.
  • Chief Executive Nicholas Block will transition to board member on October 1, with President Larry Katz assuming the CEO role in a carefully planned leadership handover.
  • Core lending saw strong growth: consumer lending revenue rose 11% driven by ACV releases and higher volumes, while mortgage lending revenue grew 7% backed by a 90% surge in mortgage deals and cross-sell momentum.
  • Management defined three strategic pillars for the next chapter: expanding the product portfolio (including AI and partnerships), simplifying how customers do business, and strengthening talent with key hires like Chief Strategy Officer Troy Cogiola.
  • 2025 guidance remains unchanged with full-year revenue of $326–$334 million (+3–6%), adjusted EBITDA margins around 41%, and continued mid-single-digit ACV release offsetting modest volume headwinds.
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Earnings Conference Call
MeridianLink Q1 2025
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