MeridianLink, Inc.

Head of Investor Relations. Eric, please go ahead.

Good afternoon and welcome to MeridianLink's second quarter 2021 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me are MeridianLink's Chief Executive Officer, Nicholas Block, and Chief Financial Officer, Chad Martin. 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. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and the other reports and filings we file from time to time with the Securities and Exchange Commission. All 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. During the call, we will also refer to both GAAP and non-GAAP financial measures. you can find the reconciliation of our gap to non-gap measures included in our press release, which is posted to the investor relations section of our website. With that, let me turn the call over to Nicolas.

Thank you, Eric, and good afternoon, everyone. Thank you all for joining us on our first earnings call as a public company. During today's call, Chad and I will provide details on our Q2 results, as well as our Q3 and 2021 guidance. We will also spend time covering the business, market, and opportunity, since many of you may be newer to the Meridian Link story. But first, I'll kick this off with a few of the highlights of our financial results. As you can see, Meridian Link exhibited strong performance in Q2. which exceeded our previously communicated guidance, driven by continued growth in consumer lending volumes for our customers and high levels of mortgage activity driven by still historically low interest rates. I am pleased to report that Q2 gap revenue was $68.5 million, up 38% year-over-year, and we delivered this impressive growth while continuing to demonstrate our high levels of profitability with adjusted EBITDA margin in the quarter of 49%. I couldn't be prouder of these results, which showcase both our strong growth and best in class margins. I'm honored to be part of such a strong organization and leadership team. One of MeridianLink's clear differentiators is the passion and commitment of our people and our dynamic culture of acceleration and inclusion. Many of our employees have 10 or more years in the lending marketplace, and it's their domain expertise that powers our industry-leading innovation and product development. I would like to acknowledge all Meridian Link employees for their performance in the first half of the year. Meridian Link is a leading provider of a cloud-based consumer lending platform for financial institutions, including banks, credit unions, mortgage lenders, speciality lending providers, and consumer reporting agencies, and our platform is an important revenue and growth engine for our customers. We are well positioned in our markets and have a strong growth trajectory. Our lending solutions include cloud-based consumer and mortgage loan origination, point of sale, account opening, collection, and analytic software that simplify the transfer of capital between consumers and financial institutions. Our solution is a leader in mid-market financial institutions. Our key customers are consumer lenders, mortgage lenders, and consumer reporting agencies, or CRAs. Our target financial institution customer has between $100 million and $10 billion of assets under management. In total, We work with over 1,900 customers, including 63 of the leading 100 credit unions and over 50% of Forbes' 2020 best credit unions and banks. Our data verification software solutions include cloud-based platforms for powering credit reporting, employment and income verification, asset verification, fraud detection, and background screening. Our mortgage credit link and TaskWorks data verification products empower CRAs with an operational platform and data, and we are leaders within the CRA software market. We have a history of providing measurable ROI to our customers in the areas of revenue growth, cost reductions, efficiency improvements, and risk reduction decisioning. Together, Our suite of mission-critical software solutions allows our customers to successfully compete against Tier 1 banks and large financial institutions. We are a critical revenue and growth engine for our customers, and as our customers continue to grow and succeed, we do so alongside them. The financial services industry is in relatively early stages of digital transformation. The global pandemic accelerated financial institutions' investment in digital lending software, and we believe our industry still has five to ten years of digitalization ahead. The United States is the largest consumer debt market in the world, and financial institutions in the U.S. are currently investing billions in software to compete for business. Cornerstone Advisors independently estimates our domestic total addressable market at over $10 billion, An international data corporation estimates that SaaS spend from the banking sector will nearly double to $19 billion by 2024. Our platform replaces outdated legacy products and less capable point solutions to enable more efficient account opening, loan origination, reporting, and risk management from anywhere and at any time. We expect Meridian Link to continue to win in the market for three key reasons. First, our platform is comprehensive. Today, too many financial institutions struggle to keep up with increasing consumer experience expectations because they rely on numerous disparate legacy technologies that still permeate the industry. In contrast, Meridian Link helps our customers compete and win by addressing nearly all consumer lending categories, including mortgage, credit card, personal, auto, home equity, and small business loans. By serving all these loan types, we accelerate our customers' digital transformation, and we remain the only mid-market complete unified lending solution originating consumer and mortgage loans. Second, our platform is efficient. Speed and intelligence matter, and our platform enables real-time decisioning and rapid access to data in a deeply complex market plagued with this organization. Because our platform integrates a suite of solutions that span the digital lending journey, we can drive more meaningful and personalized interactions. This is essential as consumers increasingly expect a more thoughtful and customized experience across their lending needs. Third, our platform is modular. Our clients can select one or many of our integrated products to facilitate growth, as well as streamline processes. The extensive Meridian Link marketplace is a game changer for our customers, as it allows our customers to extend our platform to meet their specific strategic requirements. Several key initiatives drove the company's solid performance in Q2. Our 2021 virtual user forum for our lending clients took place in May, and had a total of 80 sessions over three days. There were more than 2,100 unique attendees and over 13,000 cumulative attendees for all sessions to engage with and learn more about Meridian Link's offerings. And when it comes to offerings, the company continues to expand. In fact, in April, the organization completed the acquisition of Salent, Salient contributes key data and marketing capabilities to our Meridian Link One platform, which we will continue to enhance and integrate. And finally, the company had another strong quarter of new logo wins, including key signings and speciality lending, continued bank and credit union expansion, and also several new customers for data verification solutions. We are proud of our recent growth and accomplishments. and even more excited about executing further on several key growth opportunities. We believe consumer lending will continue to grow, and as the volume of our customers' lending increases, we expect to share in that growth. Given our position in the market, our operational execution, and the positive market dynamics, we are confident in our growth trajectory. We see multiple growth vectors. First, expanding our target market. We have historically focused on the middle market, regional banks, community banks, credit unions, speciality lending providers. However, our solutions also resonate well with larger and smaller financial institutions, and we believe we can successfully expand our target market to include both. Our newly packaged offering targeting smaller prospective customers has quickly gained traction. Second, adding new logos. Our high-powered sales capabilities are built to acquire high-value new logo ones. We are making investments in sales and marketing to continue securing new clients, particularly as financial institutions seek to digitally transform by purchasing more effective and scalable technologies, and our go-to-market team continues to win new customers in our target market. Third, continuing to land and expand. The critical nature of our solutions facilitates exceptional retention and embedded cross-sell growth within our existing client base. We have a demonstrated ability to both retain customers and to upsell and cross-sell more of the features and functionality we offer inside their existing installed products and new products. As demonstrated by record attendance at our recent user forum, there remains strong interest in our customer base to learn more about our additional integrated products and services. Fourth, monetizing our partner network. Our vibrant partner marketplace provides our customers with the vendors and solutions of their choosing and offers us a substantial, actionable monetization opportunity. Our solutions act as the gateway for our extensive network of third-party partners to access our financial institution and CRA customers. We are able to capitalize on one-time service fees, annual integration fees, and transaction-based revenue share income via the MeridianLink marketplace. We expect to work with current and new partners to enhance the opportunities for our customers to optimally position themselves in the market, and when our customers win, we win. Finally, strategic M&A. In addition to developing our own solutions organically, we will continue to selectively pursue acquisitions that provide additional capabilities or customers or both. M&A continues to be a significant area of opportunity for growth, consolidation, and technology enhancement. In the past 12 months, we have increased platform adoption and capabilities through three acquisitions. TCI, which improved our indirect lending offering, TaskWorks, which established the leading position in adjacent areas of the CRA market, and Salent, which brings data analytics and marketing capabilities in-house for our clients. I will now turn the call over to Chad to talk about our financial results.

Thanks, Nicholas, and thanks again to everyone for joining us today. Since this is our first earnings call, I'll start by providing a brief overview of our financial model, and then I'll go through our second quarter results in detail before moving on to guidance for the third quarter and full year 2021. As Nicholas mentioned, in the second quarter, we generated total revenue of $68.5 million, up 38% year over year. 88% of our second quarter revenues were subscription fees, with the balance coming from the professional services and other. We have a usage-based SAS recurring revenue model that drives our healthy financial position and growth profile. It is resilient and provides visibility into our future financial performance. Our customers sign long-term contracts, usually three years, that are not cancelable without penalty. Typically, customers commit to annual fees and monthly purchases of applications. In exchange for higher monthly commitments, they receive lower per application pricing. And any transaction over the monthly minimum commitment is an incremental charge. Our platform's ability to make our customers more efficient and effective at lending naturally drives more volume once it is installed and used. We like this model as we can grow with our customers and we are aligned with their success. We provide both lending software and data verification software solutions. In the second quarter, lending software solution revenues accounted for approximately two thirds of our total revenue and grew 38% year over year. The other one third of our revenues comes from the data verification software solutions. which increased 39% year-over-year, largely due to a still heightened level of mortgage refinancing activity, including associated credit reports driven by lower interest rates. Second quarter revenues from the mortgage loan market generated 8% of our lending software solution revenues and 71% of our data verification software solutions revenues. Of the 38 points of year-over-year revenue growth in the second quarter, 24 points were contributed by the acquisitions of TCI and TASworks, while the remaining 14 points came primarily through the addition of new customers, increased module penetration of existing customers, and increased volume from both new and existing customers. Our strong unit economics continued in the second quarter as our gross margin was nearly 70%. We continue to invest in our sales and marketing and research and development efforts to drive organic growth acceleration. We are investing significantly to build robust sales and marketing capabilities. Compared to the second quarter last year, we spent 94% more in sales and marketing and 54% more in research and development. Even with this additional spend, our adjusted EBITDA margin was 49%, and our adjusted EBITDA grew by approximately $7.6 million to $33.4 million. While we continue to invest for growth, we will also carefully control expenses and convert increased revenues into profit. Turning to the balance sheet and cash flow statements, We ended the second quarter with $29.2 million in unrestricted cash and cash equivalents, down $44.3 million from the end of the first quarter. After the close of the quarter, we used $200 million of our IPO proceeds to pay down debt, extinguishing our second lien debt and reducing the first lien by $75 million and reducing our quarterly interest expense to around $5.9 million. As part of this pay down of debt in Q3, we incurred a debt extinguishment charge of $4.4 million. Operating cash flow in the second quarter was $21.2 million compared to $11.7 million a year ago. Free cash flow was $19.5 million in the second quarter, a 28% free cash flow margin compared to $9.8 million and a 20% free cash flow margin a year ago. The 8% improvement in free cash flow margin was driven by converting incremental revenue into operating cash flow. I will now conclude the call by providing guidance for Q3 and for the full year of 2021. Overall, we continue to see strong business momentum and our pipeline remains robust. For the third quarter, estimated total revenue is expected to be between $62.9 million and $63.5 million, compared to $52.3 million for the same period in 2020. This represents an estimated increase of 20% to 22% year over year. On a non-GAAP basis, our third quarter estimated adjusted EBITDA is expected to be between $25 million and $25.6 million, representing EBITDA margins of approximately 40% at the midpoint of the range. For the full year 2021, Estimated total revenue is expected to be between $256.7 million and $257.9 million, compared to $199.3 million for the same period in 2020. This represents an estimated increase of 29% year-over-year. On a non-GAAP basis, our full year 2021 estimated adjusted EBITDA is expected to be between 112.3 million and 113.5 million, representing EBITDA margins of approximately 44% at the midpoint of the range. TCI and TaskWorks are expected to continue contributing at levels in line with recent performance, accounting for typical seasonality, in both Q3 and the remainder of the year. Lending software is expected to suffer a modest drag from slowing mortgage lending activity, while data verification will be facing difficult comps in the quarters ahead given the elevated mortgage refinancing activity in the year-ago quarters. With that, Nicholas and I are happy to take any of your questions. Operator?

Thank you, Chad. As a reminder, to ask your question, just press star and then the number one on your telephone keypad. And if you need to redraw your question, just press the pound key. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Koji Ikeda from Bank of America. Please go ahead.

Hey, guys. Hey, Nicholas. Hey, Chad. Congrats on a nice first quarter as a public company, and thank you for taking my questions. A couple from me. Just to start off, on the mortgage versus consumer, mortgage now being 8% of lending software solutions, is that the right way to think about that mix going forward?

Koji, thank you. I appreciate the initial comments and the question. Chad, why don't you respond to that for us, please?

Sure. Thanks, Koji. So we broke out the mortgage exposure for both the lending software solutions and the data verification software part of our solutions. So that was 8% on lending and 71% on data verification, 30% overall for the quarter. And so that 8%, we think, as the market for mortgage renormalizes, And as the market grows for the consumer side, it will potentially come down through time based on just the overall market trend.

Got it, got it. Okay, and then looking at the mortgage software solutions revenue and the data verification software revenue for the mortgage market, both down sequentially. You know, overall rates have been holding pretty steady at low rates. And you did mention some commentary that there could be some, you know, gradual decline here. I mean, is this really the indication that the refi tailwinds that your business saw in the past is mostly now behind and a decline in the refi volumes and the revenue model has really begun here?

So the way we forecast the impact of business is we leverage kind of the third-party industry views on the market. So we don't have a team of economists, so we're relying upon, you know, the Mortgage Bankers Association, Fannie, Freddie, et cetera, to see what they're forecasting around the timing of the slowdown on refinancing activity. So our forecast, we believe, is in line with that view, obviously as adjusted for how that forecast impacts kind of, you know, our stream of revenues.

Got it, got it. Okay, last question from me. Just trying to work the math here. So with the TCI and TASWorks, 24 points of growth contribution, so that implies about $12 million in contribution from TCI and TASWorks. Is that right? And that's all in consumer, correct?

So both TCI and TASWorks aren't tied to mortgage. And, yes, the math, I presume you're doing your math right, 24% of the growth in the quarter, 24 of the 38% was tied to TaskWorks and TCI. And neither of those are focused on mortgage. So, yes, in terms of the breakdown, TCI is in our lending software solutions, and they focus on auto and indirect auto. And TaskWorks is in our data verification part of our business, and they're focused on employment and tenant screening.

Got it, got it. So backing that out of the consumer side, that does imply the consumer loan market grew about 15% organically. Is that in the ballpark? And I guess if it is, that's really great organic growth. Can you talk a little bit about what's going on in the consumer side that's driving that mid-teens growth there?

Yeah, so what's driving growth on that part of the business is a combination of customers who are on our platform, who are utilizing either more of the solution because we've cross-sold or up-sold into them other parts of the platform that we have, or we remember we also have a volume-based pricing model. So for those customers who are beyond their monthly commitment, as they see additional volume in their institution, we participate in that. And then, obviously, we also have new customers who come onto the platform during the year, and so it's kind of broken between growth from existing customers and growth from new customers combining to drive us forward.

Got it, got it. Thanks so much for taking my questions. Appreciate it, Nicholas and Jack. And congrats again. First quarter as a public company. Thank you so much. Thanks, Koji.

Thank you. Your next question comes from the line of Timothy Chiodo from Credit Suisse. Your line is open.

Great. Thank you so much. So similar, first congratulations again on the first quarter as a public company. And also a similar question. So in our model, we tend to or attempt to back into the core consumer LOS business where we're backing out the mortgage, we're backing out acquisitions. And it does seem like it wasn't really just this quarter. It does seem like that business has been growing mid to high teens and maybe even higher in certain quarters, depending on some of the assumptions we have in the background. years of our model. It's been growing at a nice rate for some time now and it's not really just a this quarter thing. I was hoping you could put some quantitative, just a framework around the components of that. So you mentioned a few, right? There are new modules. There's new customers. There's maybe a little bit of churn. And then, of course, there's increasing usage or underlying end market. When we think about that growth going forward, what is the quantitative or growth algorithm that investors should think about for that business, which makes up, on our estimates, roughly 60% of total?

Yeah, Tim, good question. Similar to the conversation that we're just having around the growth. So I think of it in those pieces that you outlined, and it's not much more complex than that, right? We have existing customers, right? And we have a lot of our go-to-market activity is focused on selling back into that existing customer base. So getting them to use more of the features and functions that we're selling, that we're providing them to get more value out of the solution. You know, some of the solutions we've introduced, like collections, data analytics, account opening, the portal, right, point of sale. So selling that back into the existing customer base, which drives incremental revenue to us for using those additional modules. And then if they're pushing more volume through the platform, right, so they add account opening or portal or something that drives more revenue, more loans to the institution. Again, if you're above the minimum, that incremental volume that the institution is seeing, because they're leveraging more of the power of the platform, having a better offering for their customers to go and lend against, So, or, you know, they're seeking out lending solutions from our customers. So the more that they have more volume, that accrues to us as well. And then, you know, there's price increases and other things on top of that from the existing customer base. And then, yeah, on the new customers, you know, our new customer, you know, the way we talk about it is net. So, of course, there's churn, right, which we kept every customer, but don't. But then on top of that, you know, and as Nicholas referred to in his remarks earlier, and he may want to jump in here and talk about kind of what we're doing on the sales side, but, you know, we're seeing, you know, success in adding new customers to the platform that really just kind of – and, again, they come in. Then the same motion that we're doing into our existing customer base, we immediately start with those new customers, right, making sure that they're getting all of the advantage – of all the solutions we have on the platform, and again, trying to get them to where they're seeing success in their solution and pushing their loan applications over and above their minimum volume.

Excellent. Thank you. Oh, go ahead, please.

Not to overstep here, but I think Chad answered it beautifully, but just think about the focus that we've created in the business and the go-to market over the last 12, 18 months. There's a dedicated team of new logo individuals that's driving and focused on expanding our footprint. There's a team that's really focused on driving what we call cross-sell, up-sell, basically, from an account management standpoint. And both those teams had a good quarter, and both those teams are accelerating. Couple that with real funnel management on the marketing side, solid progress in kind of accelerating funnel progression, and it's enabling the sales team to go into market more confidently. What we haven't spoken about on this call yet is also a partner marketplace where we are enabling optionality and customized implementations for customers that really want to configure a specific environment or a specific integration. And that partner marketplace is accelerating for us. We kind of think roughly that out of $1 of new SaaS revenue, there's about $0.25 of revenue associated with the partner marketplace, which I think in years to come will be a great playbook for us to continue to build, invest, and expand on as well.

excellent thank you so much for that additional call i really appreciate it my minor follow-up is i believe the first half contributions from tci task force inorganic contributions was in the 22 to 23 million and we just referenced that it was roughly 12 million or so during q2 we had been modeling something in sort of a 35 million range for the full year And you mentioned earlier that you do expect those inorganic contributions to continue to perform in line, but along with their typical seasonality. Should we still be thinking about a roughly $35 million figure, or will that be slightly higher now for the full year, given maybe some of the strength in Q2?

Yeah, Tim, so I'm not specific what you have in your model. I think you're kind of backing into where those businesses have been based upon the reports and the analysis we have. And as I mentioned on the call, right, so we think they'll continue in kind of their current trajectory, but for the seasonality, right, which we expect to see kind of impacting in the fourth quarter. So hopefully that gives you some guidance there.

Okay. Definitely helpful. Really appreciate it. Thanks a lot for taking the questions.

Thank you. Your next question comes from the line of Soket Kalia from Barclays. Your line is open.

Okay, great. Hey, Nicholas. Hey, Chad. Thanks for taking my questions here, and I echo my congrats on becoming a public company. Nicholas, maybe first for you, just to zoom out a little bit, I was wondering if you could just talk a little bit about the competitive environment in your lending solutions business, particularly that non-mortgage piece. Maybe just be helpful, since this is our first call, if you could just recap sort of the competitive backdrop there and how it's changed, if at all.

Thank you, Saket, and thank you for your congratulations, too. It's pretty exciting being being public here. Yes, not a whole lot has changed, but let's kind of look at Meridian Link's history a little bit and also where Meridian Link historically focused on where we're going. We've always been focused on enabling the mid-market to compete more effective with large banks, large financial institutions in the field. And our solutions have been tailored to The platform that we've built, the integrations we've done, really enabled the mid-market to punch well above their weight in lending. Over the last, call it two years or so, we've seen ourselves getting into larger and larger transactions where customers are not looking for full-on customization but configurability in the solution as well as the ability to integrate into our partner network and those partners that's part of the Meridian link. ecosystem and that helped us kind of keep winning larger and larger accounts and we typically compete with with competitors in that space that would would be more focused on customization and custom development which we don't do but we we recognize that there's a ceiling at some point but we keep kind of moving up market with our new logo wins there on the down market side we tend to replace legacy solutions point-to-point solutions, and even in a rare instance at the real lower end, something that's even more manual than that. And how we go to market there is much more of a prepackaged offering, where our solutions have a set implementation playbook. The integrations are pretty much defined that we bring to market for those kind of lower end institutions. And It's been great for us in terms of new logo wins, traction, and even pipeline bolts. So from our perspective, we haven't seen much change in the consumer lending side. Typically, you would expect on the higher end and then kind of more the point solutions or more legacy, which are typically more electronic workflow approval than real integration, automated decisioning,

uh... what money links platform uh... bring to those institutions that's that's very helpful uh... chad maybe it may be just right follow-up for you will keep it to and committed to switch gears a bit and and human to margins you know i think you've become origins here uh... you know the first half of the event sort of in the pipe or he's almost fifty percent you know i think the guide for q three is about forty percent I imagine public company costs are at least a little bit of the culprit there. But you also talked a little bit about investing in sales and marketing. Can you just talk a little bit about high levels, sort of how you think about some of the puts and takes to sort of that margin in the second half? Does that make sense?

Sure. Yeah. And, you know, I referenced in – Earlier, you know, we did accelerate our spend on a year-over-year basis for our sales and marketing and our R&D, right? And as Nicholas talked about, kind of the success we've had in making those investments on the sales side, as well as continuing to invest in new products. We expect to continue to see growth there in spend on a relative basis versus prior years and prior quarters. And, yeah, there is additional kind of costs associated with going public that we're layering in, both just kind of hard costs of insurance and platforms and technology and costs of persons who we've added to help us be a public company. And so layering those in is kind of – pushing on the back end of the back half of the year. But, you know, over time, right, as we continue to grow the revenue, you know, we're still comfortable with kind of the long-term margin guidance that we've provided previously.

Got it. Very helpful. Thanks, guys.

Thank you. Your next question comes from the line of Andrew Schmidt from Citi. Your line is open.

Hey, Douglas, Chad, Eric. Gratitude as well on the first quarter out of the gauge here. Good to see. I want to dig into also the non-mortgage consumer outside. I think a lot of the questions around this are just a function of trying to offset some of the pending mortgage headings we're seeing to maintain or accelerate this line. So I want to dig into your visibility on in terms of maintaining or accelerating the current rate of growth on the non-mortgage consumer oil oil side. It seems like, you know, clearly you've put a lot of emphasis on the good of market, a lot of investment there. It seems like that should be showing up now, which can sort of sustain or improve the current levels of growth we're seeing from that and sort of the secular backdrop in the market. So just curious to get your sense between sort of the sales pipeline and the implementation pipeline Just confidence and growth there. Thank you.

Thank you, Alex. And I'll make some high-level remarks here in the chat. If you have anything to add, please speak up when I'm done. But from a consumer's lending standpoint, we've seen real acceleration in the business over the last year, year and a half. And bookings in the company has been very strong. We are the benefactor of a healthy backlog and a healthy pipeline to go and implement, and the team's really focused on doing so and scaling our services muscle and enabling those newly acquired customers and turning them onto our platform. So I'm pretty excited about what we're taking with us into 2022, given the success we've seen in winning business so far in 2021. As it relates to what can you control, what can you not control, I don't really lose sleep over the world of supply chain, the world of and possible issues in the Middle East or any of the things we cannot control. Myself, the leadership team and the employee base is very focused on delivering great products to our customers, turning our customers into real ambassadors of our solution and our products. It's focusing on delivering the best customer service we can. It's on winning the customers on the deals we are at. From a consumer lending standpoint, I'm very buoyant. I'm excited to where the business is going and accelerating. And I feel we kind of on that acceleration curve where the sales team has really come through over the last year, year and a half, accelerating building systems, processes. It's becoming predictable, repeatable. We can see pipeline progression. We kind of really see that. It's now also turning on the rest of the organization, coming behind our sales organization, and supporting those clients, implementing those clients. And I think 2022 is going to be a year for us kind of turning that into more of a reality as we've continued the winning streak we've had with bookings. Chad, anything you want to add to that?

I would just add the point, Andrew. Thanks for the question. I would just add that the way our contracts are structured, our customers don't start paying us until they're implemented and go live and are using the solution. So, you know, the bookings and kind of the sales success Nicholas has talked about kind of goes into our internal pipeline to then go get implemented. So, you know, the success today will turn into customers and revenue, you know, down the line. And so obviously we want to kind of get them online as soon as possible, but there's a lot of change management involved when you implement a solution like a loan origination system. And so, you know, that gives us the comfort. And then also once those customers come in, right, then they kind of start using more of the platform. And so, you know, we see growth from those future customers kind of, again, growing through time as they take and use more of the system or turn on more loan types and put more volume on the platform.

Got it. Sounds very constructive. Thank you for those comments. On the M&A strategy, done a good job recently of adding products onto the platform to be able to cross out additional capabilities through both data verification and the LOS side within direct lending and such. But as we look at the pipeline today, is the strategy more of the same in terms of capabilities or product add-ons, or are there larger motor transformation opportunities that you see, maybe towards commercial lending or something that could be a little bit larger in nature? Thanks.

Thank you for the question, and it's a really good question. Maybe take a step back, and I'll give you a 30-minute snapshot into what we did that late to the acquisitions. About a year and a half, close to two years ago now, we started a process in the business where we've developed a strategic plan with long-range planning and modeling that really was the basis of us making decisions for capital allocation in the business. It also helped us to provide clarity as we onboarded Eric and started focusing on our M&A playbook. and layering that M&A playbook over priorities that we've identified in our strategic plan. Our focus to date has been very much on it needs to be strategic, it needs to add to the consumer landscape, and by that I mean we service the consumer either through consumer lending, mortgage lending, or our data verification solutions, and it really needs to enable customers and the consumer to benefit from it. If it's good for our customer base and it fits well into our platform and it's strategic to the business, it makes sense. And the art in evaluating a lot of these transactions is actually saying no to deals, not saying yes, because there's significant deal flow, as you can imagine, in the market. And we really focus on continuing to look at opportunities that enable and help us drive our priorities. And we've made decisions in the business where capital allocation would go towards building or partnering and not buying or acquiring and buying when it made sense from a strategic standpoint. We would like to think that the markets that we're looking at from an adjacent standpoint would really benefit our platform and our focus. I don't think we will go too far afield with what we're looking at If they are transformative plays that would really change the landscape or the TAM or anything that we should be looking at and take a real hard look, we'll certainly do that. But typically transformative acquisitions don't come by frequent and often. And I think we can certainly keep ourselves busy for a long time to come with platform additive acquisitions customer additive type of M&A activity, and that's the focus of the team. It needs to fit into our strategic plan, and we all need to stack hands and really see the benefit of it for our customers and our platform. Chad, I don't know if you want to add anything there.

No, that's great. Thanks. I agree 100%. Very helpful.

Appreciate the focus. Thanks, Nicholas. Thank you, Chad. Congrats again.

Thank you, sir.

Thank you. Your next question comes from the line of Alex Sklar from Raymond James. Your line is open.

All right. Thank you. Nicholas or Chad, I want to follow up on the cross-sell opportunity you've been talking about and seeing some improvements on already. Could you just talk about some of the steps that you've taken internally to really promote that cross-sell activity? And with that, I think you've talked about customers having on average four of your solutions. Is there any commonality in terms of the customers that are taking higher number of solutions? Thanks.

Thank you, Alex. Kind of starting with a question, we fairly early on realized as we were continuing to scale our go-to-market operation that we need to split the teams. New Logo Motion, quite different from enabling customers to get more of the benefits of the platform, working with customers, showing partner integration opportunities, working with our customers, kind of better and deeper understanding and use the platform. So the first step that I think was a significant step in our thinking was to create separate teams some time ago. We've continued to add to the cross-sell, up-sell team in terms of headcount. We've continued to build out and enable the team with better understanding of our products. And if you ask me where we are today and where we want to be, I continue to say to folks, It's a journey. It's not a destination. We're never going to be at a place where we should be totally content with what we've built. We should continue to improve. We should continue to invest and enable. As we work through enabling the cross-sell, up-sell team, I think there's opportunities to expand with an existing customer with tools, with modules that we've previously not done. I think we can continue to see growth in that four. I'm hopeful that we can start pushing five here in the not too distant future on average. But also there's a very sizable opportunity to better enable and better integrate our partner marketplace with our cross-sell upsell team. And that's something we're pretty excited about, thinking through how we want to start enabling that in 2022 and beyond. So from my perspective, I think we've built a great foundation. We've enabled a great tech stack across our organization, which we continue to invest in better understanding our customers, how our customers are using technology, our technologies, our platform, and then which customers ultimately down the line will benefit the most from a specific product set given the data that we can analyze, and also whether it's our product or a partner product. And I think that's another crank of the turn that we are starting to get our heads around for 2022.

Okay, great. That's a really helpful color. And maybe my follow-up kind of continues on that theme, but I wanted to ask about Meridian Link 1. and the early progress and feedback as it relates to your next-gen platform. I know it's still early days, but anything you can tell us in terms of cross-sell or usage benefits from those early adopters, and anything in terms of goals, in terms of what percent of your base you expect to have live before the end of the year? Thanks.

Yeah. Meridian Link One is the collective term for our consumer lending, and I broadly define that by including our mortgage offering as well. And by saying that, we'll be the only consumer loan origination platform that includes mortgage in the market. And from a cross-sell, up-sell standpoint, it's really a focus that we're driving into 2022. We've got some early adopter clients that we're working with. So far, good feedback. Great feedback. Thinking through the feedback and how to adopt some of the feedback and bring it onto or into the platform. So from my perspective, very pleased with where we're at. I think it's, from a timeline standpoint, I would say an area of focus for 22 more than 21. But what we're doing is bring it all together, bringing the consumer lending offering all together under Meridian Link 1. with the naming conventions that I think we've shared with you a little while ago.

Okay, great. Thank you.

Thank you. Your next question comes from the line of Matt VanVleet from BTIG. Your line is open.

Hey, guys. Thanks for taking the question, and nice job on the quarter. Congrats on the IPO. I guess, as you mentioned, your user conference a little bit earlier in the year really showed a lot of success. Maybe just help us out in terms of Any specific areas or segments of the market that were sort of surprising there or provided more upside than you were anticipating? And then how has that event differed from different iterations in the past? How much more successful or pipeline build or deals specifically closed coming out of that did you see this year?

That's a good question. The evolution... Over the last, say, three years, started with much more breakout sessions, much more focused on specific offerings, user stories where users have been successful in working with us and enabling a solution for the market. It continues to be a great lead generator for us. We tend to showcase products, new functionality, kind of get ahead of the market in terms of where the platform is going. And that always cultivates a lot of discussion, great interaction with clients. And from a lead gen pipeline perspective, we've seen a great pipeline build. We've seen deals close already. So even with it being virtual for the second time in a row, It hasn't slowed down or changed anything meaningfully in terms of the benefits from it. In fact, I would say it probably accelerated some, even with the switch the year before and this year still being a virtual event. I would say customers tend to ask when we will be in person again. Hopefully we can do that soon because I think we miss out on the networking opportunities that exist. and kind of the social setting and where customers kind of engage with each other. But given what we had to do and deal with from a virtual standpoint, I would say I was very pleased with the outcome, the results, and the subsequent benefits in pipeline and in deals already closed.

Great. And then quickly, Chad, can you just remind us where you're at in terms of – Whether, I guess, growth in quarter carrying headcount on sales front, especially on the new logo team. And then how much of the increased investments are around sales support and building out some of that cross-sell team versus adding new quarter carrying headcounts?

Yeah, thanks, Matt. So we don't break out specific quota carrying reps, but, you know, we talk about continuing to add to that team. And, yes, you're correct. And, you know, one of the ways we think about it is not just adding more reps, but really building the team around the reps. Uh, and our CRO, Brian clan talks about, right. You know, you know, not just having one pitcher throw the whole game, but really having, you know, the rotation and the depth and, you know, the folks on the, you know, for their specialists. So you have pre-sales, you have people who set up, uh, then you take them to demo that then leads to a closer. And so we're really focusing on both the process and technology that the teams are using. And Nicholas talked about, you know, basically seeing faster conversion of opportunities in the pipeline, but then actually then having really great kind of tools and technology to help stand up a new rep when they come on board so that we can, you know, we can see them be successful. All right, great. Thank you.

Thank you. Your next question comes from the line of Tom Roderick from Stiefel. Your line is open.

Great. Hi, Nicholas. Hi, Chad. Thanks for taking my questions. And again, congratulations on the results of the recent IPO. You know, this is going to build a little bit on that Van Leet's question, but I think it's a good one relative to not just the pace of transaction of volume that you're seeing from existing customers, but, you know, what it's taking new customers to kind of get across the goal line. And, On one hand, it seems to have been a challenging environment for some of your peers out there convincing fintechs, I'm sorry, convincing actual banks and credit unions to upgrade their legacy technology stacks. On the other hand, you're kind of looking at a customer base that is being forced to change given the volumes that are taking place on the platforms out there. So would love to hear, you know, from your perspective, what's happening with new logo wins, what the urgency is for selection, and how that plays into, you know, perhaps seasonality in terms of when you actually see those new customers come on the platform.

Yeah, I'm happy to go there, and I think it's a good question. It actually makes me pause and think for a second. And here's my perspective on it. We are living in the earlier stages of a digital transformation in the mid-market. A lot of the larger institutions started earlier, and they've probably invested more in digitalization than the mid-market. And the pandemic was a real catalyst, kind of forcing folks to start thinking about their business model their business strategy serving their customers and what's different um what we're looking at is a mid-market that is ready and ripe for transformation ready and ripened and the type of customer that we would love to find as an opportunity to engage with is folks who who's in the business who's been using a solution that they're struggling with serving and meeting consumer expectations, that is anywhere, anytime, kind of on more of a single platform and not a point solution, which is hard to integrate. And that's where Meridian Link excels. And from my perspective, I can't speak to the folks that you mentioned that are struggling to kind of move legacy solutions, but what I can tell you in our experience is where it relates to the consumer, our mid-market customers are actively interested in bettering what they have, improving their level of service and offering, and have the ability to make better and faster decisions on a much more real-time basis. And that's where Meridian Link's platform really excels. And some of the acquisitions that we've done kind of ties it better together from an overall standpoint where we have access to information, where we have the ability to kind of make better real-time decisions. The type of customer we find have a legacy solution which don't have the level of integration, which lacks the level of automated decisioning in most cases, And we enable these mid-market institutions to effectively and better compete with their peers who has made an investment into digitalization or larger institutions. So from my perspective, I don't find it is really selling against kind of legacy or the hesitancy to shift. It's finding those customers who's ready and who wants to make the investment and understanding I always say to our sales team, we're not a back-office solution. I think it's more challenging to engage in today's time if you're investing in back-office solutions or in branch solutions. We integrate with back-office solutions, but we are an enabler of customers' interactions, digital interactions with the institution. And my view is it's a little bit different than our peers. We tend to enable revenue growth. We tend to see our customers who transition from a legacy solution grow faster than their peers, and they tend to be more efficient and generate some cost savings along the way. So from my perspective, it's a little bit different than struggling to sell up from a legacy solution, I think the market is accelerating into it, and it's a tailwind that we are benefiting from.

Yeah, outstanding. That's really good, Collin. Thank you, Nicholas. Chad, quick follow-up from you. I really appreciate all of the detail on the contribution from the mortgage side of the business, and I think everyone probably understands the challenge of those compares year on year, so I won't belabor that, but I think that's great detail. to sort of understand how we measure up on those compares. Would love to hear a little bit more detail on the auto lending side of your business. I mean, that was a business that was probably pretty tough from a transactional framework last year, but probably pretty robust this year. Can you just give a little bit more color as to how that segment of the business is impacting uh, your growth and how we might think about, you know, when compares get tough on that or are those, is that a pretty steady book of business as you look out over the last three, four or five years?

yeah thanks tom so you know auto is one component of lending on the consumer side and we don't we don't break out or or segment report the various loan types um so so to that end you know we and it is just one of the loan types in the system and as i've talked about like when the The volume of a customer exceeds their commitment, right? And it's the volume across all of the loan types that they're processing, opening accounts, credit cards, auto, direct, indirect, et cetera. So, you know, we end up kind of looking at their holistic level of business. And, you know, anything that's kind of moving, you know, up or down in any period, you know, there's often a corresponding offset from another loan type. So nothing that we're seeing as we kind of look at that, you know, everything, I would say everything in the volume of loans that we're expecting and forecasting kind of ties to, again, the industry outlook from CUNA and others as to what's going on in the market and what we're seeing generally in our own volumes. Perfect.

Perfect. That's it for me. I'll jump back in queue. Thank you both.

thank you your next question comes from the line of bob napoli from william there your line is open uh thank you and uh congratulations on the added congratulations so great to see uh well-earned uh so i guess uh nicholas you talked a lot about uh the sales and you know the increased investment in sales on the r d side you know it seems like uh since this management team has come in or since bravo is become involved. There's been more investment in R&D, and the product has probably improved a lot. The tech stack and the product stack.

Now, Bob, this is Nicholas. I don't know if it was my phone or your phone, but it cut out a large portion of your question, and I hope it's not offensive to ask you to repeat the question.

Not at all. We've talked a lot about sales, but it seems that it's been critical to the company. You've really improved the product set since Tom O'Bravo has brought in the management team. What has been the most important upgrades? And with your current investment, what is the most critical to the continuous improvement that you need to make that's continued the momentum you have?

That's a really good question, and you're right. The investments we're making in product will benefit us in future years. We've made a number of investments in the product. We've invested quite heavily in the migration to cloud, and we would like to get the scalability and the benefits and what comes with a public cloud environment from a security and everything standpoint. But our customers are starting to ask it as well, and we've made that decision to start investing two years ago, and we're well into our journey now. But also we've invested in new user interfaces for our products, which brings it much better together. That's been another work stream that has been in high demand, high request from our customers. We are investing in, call it, enhanced decisioning. For our product, as we move upmarket, we would like to remain competitive on that front with our offerings. And then also on the mortgage side, we continue to invest, and we had a big run of investment going into our mortgage product over the last 12, 18 months. So from my perspective, you can always do more. There's always an opportunity to kind of continue to look at But we've made some really good decisions in what's going to benefit the company for the long term, what's going to benefit our clients for the long term, and also focus on enabling functionality that I think benefits large groups of our customer base. And where to from here? I think we've been speaking about we're excited about enhancing our front-end technology, doing deeper integrations with a number of our partners, and continue to really get the company ready to accelerate to the next level with automation and deeper decisioning technologies.

Thank you. And just to follow up on the mortgage investment, if you would, so I think your data verification business is, is pretty unique versus the number of players in the market. Are you investing more in that, or are you investing in the LOS or the POS? And there's a lot of confusion around, you know, the LOS versus, you know, who's the LOS versus who's the POS competitively in the market. So what areas are you investing in mortgage?

In mortgage, we are investing in the LOS. We have POS partners that we partner with. in the marketplace.

Okay. And the verification, the data verification piece?

And the data verification on the mortgage side, we work with a number of CRAs, mostly the CRAs who do not run their own custom platform and system. That is a focus for us in years to come to continue to invest on the front end, but it's in a in a non-threatening way to the LOS or the POS.

Thank you. Appreciate it.

Thank you. There are no further questions on queue. I will now turn the call back to our CEO, Nicolas Vlas. Sir, please go ahead.

Folks, I just want to thank you for joining us on our first public company call. I've never been more optimistic about the opportunity ahead of us and the future of Meridian Link. And I'd just like to say on a personal note, this has been an incredible journey, and I want to send our sincere gratitude to all of our employees, our customers, our partners for getting us here. And then for you on the call, thank you for all your interest in Meridian Link, and I'm really looking forward to talking to you on our next earnings call. Have a great evening. Thank you.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.