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As filed with the Securities and Exchange Commission on June 15, 2021.

Registration No. 333-255680

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Project Angel Parent, LLC

to be converted as described herein to a corporation named

MeridianLink, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7372   33-0849406

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

 

1600 Sunflower Avenue, #200

Costa Mesa, CA 92626

(714) 708-6950

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Kayla Dailey

General Counsel

MeridianLink, Inc.

1600 Sunflower Avenue, #200

Costa Mesa, CA 92626

(717) 462-1662

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Bradley C. Weber

Joseph C. Theis, Jr.

Natalie T. Martirossian

Goodwin Procter LLP

601 Marshall Street

Redwood City, CA 94063

(650) 752-3100

 

Bradley C. Reed, P.C.

Michael P. Keeley

Kirkland & Ellis LLP

300 North LaSalle

Chicago, IL 60654

(312) 862-2000

 

Katharine A. Martin

Rezwan D. Pavri

Bryan D. King

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

 

 

Approximate date of commencement of proposed sale of the securities to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐                   Accelerated filer  ☐               Non-accelerated filer  ☒               Smaller reporting company  ☐             Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

 

Proposed Maximum

Aggregate Offering

Price(1)(2)

 

Amount of

Registration Fee(3)

Common stock, $0.001 par value per share

 

$100,000,000

 

$10,910

 

 

(1) 

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) 

Includes the aggregate offering price of additional shares that the underwriters have the option to purchase, if any.

(3) 

The registrant previously paid $10,910 of this amount in connection with the initial filing of this registration statement on April 30, 2021.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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EXPLANATORY NOTE

Project Angel Parent, LLC, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Immediately prior to the effectiveness of this registration statement, MeridianLink, Inc., the operating company and the indirect wholly owned subsidiary of Project Angel Parent, LLC, intends to change its name, and Project Angel Parent, LLC intends to convert into a Delaware corporation pursuant to a statutory conversion and change its name to MeridianLink, Inc. as described in the section titled “Corporate Conversion” of the accompanying prospectus. In the accompanying prospectus, we refer to all of the transactions related to our conversion to a corporation as the Corporate Conversion. As a result of the Corporate Conversion, the members of Project Angel Parent, LLC will become holders of shares of common stock of MeridianLink, Inc. Unless the context otherwise requires, all references in the accompanying prospectus to the “Company,” “MeridianLink,” “we,” “us,” “our” or similar terms refer to Project Angel Parent, LLC and its consolidated subsidiaries before the Corporate Conversion, and MeridianLink, Inc. and, where appropriate, its subsidiaries after the Corporate Conversion.

Except as disclosed in the prospectus, the consolidated financial statements and selected historical consolidated financial data and other financial information included in this registration statement are those of Project Angel Parent, LLC and its subsidiaries and do not give effect to the Corporate Conversion. Shares of common stock of MeridianLink, Inc. are being offered by the accompanying prospectus.


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LOGO

Subject to Completion

Preliminary Prospectus dated                     , 2021

PROSPECTUS

                 Shares

 

 

 

Common Stock

 

This is MeridianLink, Inc.’s initial public offering. We are selling                  shares of our common stock and the selling stockholders are selling                  shares of our common stock. We will not receive any proceeds from the sale of shares to be offered by the selling stockholders.

We expect the public offering price to be between $         and $         per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol “MLNK.”

Upon completion of this offering, affiliates of Thoma Bravo UGP, LLC will own approximately     % of our issued and outstanding shares of common stock. As a result, we will be a “controlled company” as defined under the New York Stock Exchange listing rules. See the section titled “Management—Status as a Controlled Company.”

 

We are an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements. See the section titled “Prospectus Summary—Emerging Growth Company.”

Investing in our common stock involves risks that are described in the ‘‘Risk Factors ’’ section beginning on page 20 of this prospectus.

 
    

Per Share

  

Total

Public offering price

   $    $

Underwriting discount(1)

   $    $

Proceeds, before expenses, to us

   $    $

Proceeds, before expenses, to the selling stockholders

   $    $
  (1) 

See the section titled “Underwriting” for additional information regarding underwriting compensation.

 

The underwriters may also exercise their option to purchase up to an additional                  shares from the selling stockholders at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                     , 2021.

 

 

BofA Securities   Credit Suisse   Barclays
 
Citigroup   Raymond James
BTIG   Nomura   Stifel   William Blair
Blaylock Van, LLC   Ramirez & Co., Inc.   Roberts & Ryan  

Tigress Financial Partners LLC

 

The date of this prospectus is                     , 2021

 


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LOGO

“One of the most impactful features of MeridianLink Mortgage is the third-party integrations with all the different vendors out there. Having the flexibility to choose the best-in-breed for all the different solutions—from credit reports to point-of-sale solutions—gives a much greater advantage over any other company that tries to do it all in-house.” Curtis Onofri Chief Lending Officer Pathways Financial First Credit Union “MeridianLink Consumer and MeridianLink Opening have been instrumental in growing and helping to retain our memberships. Both MeridianLink Consumer and MeridianLink Opening have powerful automation capabilities. Automation gave America First Credit Union the ability to streamline our workflows and improve the member experience. This enabled us to meet our goals of membership growth and retention.” Kortney Nipko Product Manager America First Credit Union “We chose MeridianLink Consumer because of its reputation within the industry. Within the first two months we experienced a 10%-20% increase in the production of credit cards, personal loans, and vehicle loans. Because of MeridianLink Consumer’s abilities, Hiway Credit Union produced more consumer loans than ever before. We knew within the first few weeks of utilizing the technology that we made the right choice for our organization.” Dean Warzala Sr Vice President of Lending Hiway Credit Union “It used to take us one day to close a loan. Now, our record time for a brand new account to a funded loan is 22 minutes It’s not just the overall volume we’ve been able to generate, it’s also the increase in efficiencies such as our ability to drastically decrease the time to close.” Dale Livingston Senior Vice President, Lending and Sales Kohler Credit Union


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LOGO

Key Company Highlights A leading provider of cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies 470+ US-based employees(1)(2) Headquartered in Costa Mesa, CA Founded in 1998 Serves 63 of the leading 100 credit unions and 50%+ of Forbes’ 2020 Best Credit Unions(3) (1) As of December 31, 2020. (2) Pro forma for acquisitions. (3) Source: Credit Unions Online, as of September 2020.


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LOGO

Key Performance Highlights 20+ 200K+ 3.8% Years of Operating Active System FY 2020 Experience Users(1) Organic Customer Growth Rate ~1,900 63 50%+ Customer Base of Top 100 Credit Forbes’ 2020 Diverse Financial Union Clients(2) list of Best CUs Institutions (3)(4) & Banks Financial Highlights $199M $177M 71% FY 2020 Revenue FY 2020 ARR(5) FY 2020 Gross Margin 89% 117% 52% FY 2020 Subscription FY 2020 ARR Net FY 2020 Adj. Fee Revenue Retention Rate(6) EBITDA Margin(7) Note: Financials reflect year ended December 31, 2020A and are not pro forma for acquisitions. (1) Active system users are individuals who have accessed one of our solutions in the 90 days prior to our measurement period of January 18, 2021. (2) Source: Credit Unions Online, as of September 2020. (3) As of December 31, 2020. (4) Pro forma for acquisition of TCI and TazWorks. (5) Calculated as the total subscription fee revenue calculated in the latest twelve-month measurement period for those revenue-generating customers and partners in place throughout the entire twelve-month measurement period plus the subscription fee revenue calculated on an annualized basis from new customer or partner activations in the measurement period. (6) Result from calculating the ARR recorded in the latest twelve-month measurement period for those revenue-generating customers in place throughout the entire twelve-month measurement period. We divide the result by the ARR recorded from the twelve-month period that is immediately prior to the beginning of the current measurement period, for all revenue-generating customers in place at the beginning of the current measurement period. Unaudited figure. (7) Adj. EBITDA and Adj. EBITDA margin are non-GAAP measures. For a definition and reconciliation of Adj. EBITDA and Adj. EBITDA margin, please refer to the reconciliation included in the financials.


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TABLE OF CONTENTS

 

    

Page

 

Prospectus Summary

     1  

Risk Factors

     20  

Special Note Regarding Forward-Looking Statements

     59  

Market and Industry Data

     61  

Use of Proceeds

     62  

Dividend Policy

     64  

Capitalization

     65  

Dilution

     67  

Selected Consolidated Financial and Other Data

     69  

Non-GAAP Financial Measures

     71  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     74  

Business

     103  

Management

     129  

Executive Compensation

     137  

Director Compensation

     146  

Certain Relationships and Related Party Transactions

     148  

Corporate Conversion

     153  

Principal and Selling Stockholders

     154  

Description of Indebtedness

     157  

Description of Capital Stock

     162  

Shares Eligible for Future Sale

     168  

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Our Common Stock

     170  

Underwriting

     175  

Legal Matters

     185  

Experts

     185  

Where You Can Find Additional Information

     185  

Index to Consolidated Financial Statements

     F-1  

Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide any information or make any representations other than the information contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. If anyone provides you with different or inconsistent information, you should not rely on it.

We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside of the United States: neither we, the selling stockholders, nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

The term “Thoma Bravo Funds” refers to Thoma Bravo Discover Fund, L.P., Thoma Bravo Discover Fund A, L.P., Thoma Bravo Discover Fund II, L.P., Thoma Bravo Discover Fund II-A, L.P., and Thoma Bravo Discover Executive Fund II, L.P. and the term “Thoma Bravo” refers to Thoma Bravo UGP, LLC, the ultimate general partner of the Thoma Bravo Funds, and, unless the context otherwise requires, its affiliated entities, including Thoma Bravo, L.P., the management company of the Thoma Bravo Funds.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares in this offering. Therefore, you should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before deciding whether to purchase our common stock.

MeridianLink, Inc.

Who We Are

We are a leading provider of cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies, or CRAs—providing services to 1,925 customers, including 63 of the leading 100 credit unions per Credit Unions Online (as of September 2020), and a majority of the financial institutions on Forbes’ 2020 lists of America’s Best Credit Unions and Banks. Financial institutions are undergoing a digital transformation as they seek to transition business models, enhance or create new revenue streams, and increase client engagement. We support our customers’ digital transformations by helping them create a superior client experience with our mission-critical loan origination software, or LOS, digital lending platform, and data analytics. Our solutions allow our customers to meet their clients’ financial needs across the institution, which enables improved client acquisition and retention. Additionally, our solutions allow our customers to operate more efficiently by enabling automated loan decisioning and enhanced risk management.

Our software solutions operate at the center of financial institutions’ technology ecosystems and help our customers drive additional business volume, both directly and indirectly through our extensive network of integrations and partner relationships, or Partner Marketplace. Our omni-channel borrowing experience integrates the full spectrum of touch points a borrower may have with our customers—remotely via the web or a mobile app, in person at a branch, or telephonically through a client service representative. In addition to providing a streamlined workflow for our customers, which has been refined over 20 years with feedback from across our customer base, our Partner Marketplace provides them with optional integrations powered by our more than 580 partners as of March 31, 2021. We believe that the collective capabilities offered through our Partner Marketplace further distinguishes our solutions from those of our competitors. We believe that our position in the credit union space provides stability to our business. According to the National Credit Union Administration, or NCUA, credit unions’ net worth, defined as the retained earnings balance, has increased $12.1 billion, or 6.8% year-over-year, to $190.3 billion as of December 31, 2020. Additionally, as reported by the NCUA, total assets in federally insured credit unions rose by $278 billion, or 17.7% year-over-year, to $1.84 trillion as of December 31, 2020 and, from December 2000 through December 2020, total assets in federally insured credit unions increased by $1.41 trillion, representing a compound annual growth rate, or CAGR, of 7.5%.

Our solutions provide a fully digital workflow for our customers, extending from their clients’ initial account opening applications to our customers’ final extension of credit and, where necessary, collections activity. We enable our customers to offer a wide array of products and services to new and existing clients, replacing traditional manual processing and less nimble in-house solutions. Our solutions address nearly all categories of consumer lending, including mortgage, credit card, personal, auto, home equity, and small business loans, and provide the software tools and data necessary to deliver automated decisioning. Our solutions are available in the cloud, and we are working to transition all of our solutions to a public cloud by the end of 2022.

We offer our software solutions using a software-as-a service, or SaaS, model under which our customers pay subscription fees for the use of our solutions and typically have multi-year contracts with an initial



 

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term of three years. Our customer contracts are typically not cancellable without penalty. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the solution, fees per search, per loan application or per closed loan (with some contractual minimums based on volume) that are charged on a monthly basis, which we refer to as volume-based fees. We seek to deepen and grow our customer relationships by providing consistent, high-quality implementations and customer support services which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We plan to continue investing in migrating all of our solutions onto a single platform resident in a public cloud and driving product development to further increase customer cross-selling and retention. We believe that our increased focus on our go-to-market strategy and partnerships will drive incremental opportunities for revenue and accelerate client cross-sell growth.

We have had a strong track record of growth throughout our operating history, including through the ongoing COVID-19 pandemic. Our total revenues were $152.7 million and $199.3 million for 2019 and 2020, respectively, representing a 30.5% growth rate. Our total revenues were $43.6 million and $67.8 million for the three months ended March 31, 2020 and 2021, respectively, representing a 55.5% growth rate. We also had subscription fee revenues of $137.6 million and $177.0 million for 2019 and 2020, respectively, representing a 28.6% growth rate. Our subscription fee revenues for the three months ended March 31, 2020 and 2021 were $38.8 million and $60.3 million, respectively, representing a 55.4% growth rate. Our net loss for 2019 was $12.6 million and our net income for 2020 was $9.2 million, while our net income for the three months ended March 31, 2020 and 2021 was $1.3 million and $7.2 million, respectively. Our Adjusted EBITDA was $64.5 million and $104.6 million for 2019 and 2020, respectively, representing an increase of 62.3%. Our Adjusted EBITDA was $21.5 million and $34.4 million for the three months ended March 31, 2020 and 2021, respectively, representing an increase of 59.8%. Our gross margin was 69.0% and 70.7% for 2019 and 2020, respectively, while our gross margin for the three months ended March 31, 2020 and 2021 was 69.7% and 71.3%, respectively. Our Adjusted EBITDA margin was 42.2% and 52.5% for 2019 and 2020, respectively, and 49.2% and 50.6% for the three months ended March 31, 2020 and 2021, respectively. See “Non-GAAP Financial Measures” for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP, and a discussion of our management’s use of Adjusted EBITDA and Adjusted EBITDA margin.



 

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LOGO

Our Value Proposition

Our software solutions enable financial institutions to streamline loan decisioning, account opening, deposit taking, loan origination, and customer collection workflows to help drive higher client retention. The wide array of financial institutions we serve, which include banks, credit unions, mortgage lenders, specialty lending providers, and CRAs, all have varying needs. Our technology and solutions empower consumer financial institutions, such as credit unions and community banks, to more effectively compete with tier 1 banks by making their products and services simpler and faster for their clients with enhanced features and functionality. In addition, CRAs leverage our solutions as their system of record to deliver credit and other information from a number of data vendors (including the credit bureaus) to enable lending decisions for financial institution customers. Our software for CRAs manages workflow, relationships with the credit bureaus, back-end packaging, non-credit data access, and billing.

Our solutions provide our customers with:

 

   

an LOS that provides an end-to-end digital lending process, including automated decisioning, underwriting, pricing, fee, and margin management tools;

 

   

a cross-selling engine that identifies potential lending and deposit taking opportunities;

 

   

a comprehensive LOS application programming interface, or API;

 

   

a broad array of integration partners to augment and extend our solutions;

 

   

a dynamic workflow based on each customer’s unique business protocols;



 

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a modern user interface, or UI, design;

 

   

configurability that can incorporate feedback from our customers’ clients;

 

   

cloud-based SaaS delivery with frequent updates (currently monthly releases) to ensure quality and assist customers with their compliance obligations;

 

   

managed workflow, relationships with credit bureaus, back-end processing, packaging, non-credit data access and verification for CRAs; and

 

   

data reporting and analytics.

By automating and improving on existing processes through the use of our solutions, our customers can save time and resources while reducing operational risk and improving customer retention, acquisition, and satisfaction.

Who We Serve

We have had the privilege of helping our customers over the past 20 years to revamp their lending and account opening processes, reduce operational costs, and increase revenue. Our diverse client base includes 1,925 customers as of December 31, 2020, including banks, credit unions, mortgage lenders, specialty lending providers, and CRAs. As of December 31, 2020, our customer mix includes 63 of the leading 100 credit unions per Credit Unions Online (as of September 2020), and a majority of the financial institutions on Forbes’ 2020 lists of America’s Best Credit Unions and Banks. Our broad reach provides connections to over 200,000 active system users, who are individuals who have accessed one of our solutions in the 90 days prior to our measurement period of January 18, 2021.

We focus our efforts on financial institutions. Our addressable market also includes specialty lending customers that target consumer credit opportunities. Specialty lending companies drive higher per customer application volume and help diversify our end-markets. Our technology enables our customers to bridge the functional silos of their institutions and thereby increase their ability to serve more of their clients’ needs and achieve incremental revenue.

We are proud of our track record of excellence with an average Net Promoter Score, or NPS, across our consumer loan origination, mortgage loan origination and data verification solutions of 32 as of December 2020. An NPS can range from a low of –100 to a high of +100. NPS measures the willingness of customers to recommend a company’s products or services to other potential customers and is viewed as a proxy for measuring customers’ brand loyalty and satisfaction with a company’s product or service. In addition, we believe that our extensive Partner Marketplace helps distinguish us from our competitors as we have integrations with over 580 partners as of March 31, 2021. Our integrations include both large, established players and emerging disruptors. Our Partner Marketplace drives value for our customers by expanding their access to the tools needed to streamline the loan and account opening processes within the workflow management of our solutions.

History

We have expanded our offerings and customer base through a combination of in-house initiatives and accretive acquisitions to support continuous innovation for our customers’ benefit. Our expanding suite of technology and services has contributed to our growth despite a variety of market conditions over the past two decades. During and after the global financial crisis, we believe that we became a preferred provider among consolidating CRAs and community financial institutions due to our innovation and focus, including functionality to bundle account opening and the loan origination process into a seamless workflow, thereby enabling our customers to increase their market share.



 

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Thoma Bravo acquired and combined MeridianLink with CRIF Corporation, or CRIF, in June 2018. The acquisition of CRIF’s capabilities coupled with an aggressive integration plan accelerated the growth of the combined company. We have realized substantial synergies through the full functional integration of MeridianLink and CRIF, including unified back-office systems and alignment of customer support and elimination of duplicative product development costs. The MeridianLink and CRIF solutions, however, continue to operate independently as supported by the integrated back-office teams. The MeridianLink solutions are considered the “go forward” platforms such that some customers using CRIF solutions have begun migration onto MeridianLink platforms. Additionally, CRIF solutions are not currently being sold or marketed. However, we have made investments in resources to allow the legacy CRIF products to continue to operate, and there is no planned sunset or end of life for those products. Continued optimization of the business has led to accelerated revenue growth, and increased customer retention, as well as improving operating margins. Prior to our acquisition by Thoma Bravo, we grew primarily through responding to potential customers’ requests for proposals, or RFPs, and inbound calls and focused on retaining and expanding existing accounts. Since the acquisition by Thoma Bravo, we further invested in direct marketing and selling efforts to expand into financial institutions that fit within our existing target markets. In addition to acquiring new customers, our direct selling efforts include cross-selling and upselling of our expanding capabilities into our substantial customer base.

In November 2020, we acquired Teledata Communications, Inc., or TCI. TCI is the creator of DecisionLender, a SaaS loan origination solution that was first released in 1998. DecisionLender is an industry-trusted LOS that primarily serves the indirect lending needs of banks, credit unions, and financial companies nationwide. By integrating TCI’s knowledge and technologies, we seek to accelerate innovation within our LOS solution roadmap in order to provide our customers with leading enterprise business solutions.

In December 2020, we acquired substantially all of the assets of TazWorks. TazWorks is the creator of TazCloud, an end-to-end technology solution for the background screening industry. TazCloud supports a large number of independent screening agencies across the nation and includes a robust suite of screening applications, a powerful API, and advanced business intelligence tools that help screening professionals operate efficiently. TazCloud delivers a robust network of integrations ranging from quality data providers to human resource information systems, property management, applicant tracking systems, and drug screening providers. TazWorks provides us with capabilities that are highly complementary to our Mortgage Credit Link offering, enabling us to provide our CRA customers with a better and more enriching experience.

The TCI and TazWorks solutions represent product offerings not previously fully offered by the MeridianLink solutions. We consider these solutions to be complementary to MeridianLink’s prior offerings, and plan to continue to market and sell them. We are considering integration of these solutions with other MeridianLink solutions on the product roadmap at a future date.

Industry Background

The financial services sector is in the midst of a transition from offering primarily in-branch services to providing hybrid in-person and digital services. This transition has recently accelerated, leading to increased investment in software that enables digital capabilities. We are well-positioned to assist our customers to compete with tier 1 banks and digital market entrants. We enable financial institutions to leverage their cost of capital advantage and community presence by allowing them to execute faster. With the digital edge we provide, our customers become more competitive in this evolving environment, which drives further volume on our platform.

Growing financial institutions demand for streamlined consumer lending software to accurately and efficiently gather the data needed to open and process all types of accounts and loans. Our core customers tend to lack the resources required to match the modernization and technology investment efforts of larger industry players. At the same time, digitalization remains critically important for our customers to compete. Having the



 

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ability to automate workflows and provide a user-friendly online process enable a financial institution to grow and maintain their client base. Our solutions provide our customers with the ability to succeed in the evolving digital lending marketplace. Financial institutions use our solutions as their LOS to provide a frictionless experience by consolidating data from all existing channels—mobile, online, branch, call center, indirect, retail, and kiosk—into a single origination point. When the lending and account origination processes are straightforward, branch staff have more time to serve their clients’ needs in an efficient and timely manner.

Digital transformation in financial institutions is accelerating software adoption and driving technology spend. Investments in digital solutions are critical for obtaining and retaining clients and this necessity has accelerated in the COVID-19 era. Our automated workflows allow for responsiveness and savings on operational costs. Technology in the origination process translates into a significant competitive advantage for lenders. We believe that the ongoing digital transformation of mid-tier financial institutions will be a driver of our growth over the next decade, as changing needs mean more demand for additional modules and services from new and existing clients. Our software solutions assist a financial institution in its determination of what loans a client can qualify for today, accelerates the processing and funding of a loan through automated decisioning and workflow, and informs the client how to improve his or her access to credit tomorrow or further into the future. Local financial institutions have begun to adopt online lending, but significant runway exists. See the section titled “—Market Opportunity” for more information.

Rising mortgage loan volume and origination costs drive demand for systems that optimize lending decisions and loan composition in an automated, accurate manner. The cost to originate mortgage loans in 2019 was 150% of the cost to originate such loans following the 2008 financial crisis, driven in no small part by personnel and ancillary costs required to comply with evolving regulations. The traditional mortgage loan origination process is outdated, requiring lengthy processes and paper forms. As of October 2020, it takes an average of 54 days to originate a mortgage loan. Advancements in mortgage LOS are transforming the process to be more automated, paperless, and fully-remote, from the initial application to closing and thereafter, greatly bolstering loan processing efficiency.

Delivery of secure and accurate data from disparate sources to institutions that rely on independent verification services. While potential customers will sometimes opt to create their own solutions to address these needs or build additional functionality into other competing solutions, launching data initiatives can be expensive, time consuming, and risky, which can be further complicated by adding credit, income, and other verification data into existing solutions. We offer complete back office functionality for CRAs and other verification service providers to process credit standing, employment, income, and tax transcript verification.

Data and analytics as an increasing area of focus by our customers. Our customers are increasingly seeking to understand both their clients and their own operations at a greater level of detail. To better serve our clients, our data intelligence solution provides intuitive dashboards, easy to read reports, and meaningful operational benchmarking data, presenting a comprehensive solution for the multi-level audience within an organization. Though our data and analytics solutions amount to a single digit percentage of our total revenues in 2020, data products that allow customers to obtain standard data reporting and analytics have been an area of focus and growth for us and our customers.

Market Opportunity

Our currently addressable market includes the U.S. consumer lending categories of small business, home equity, auto, personal, credit card, and mortgage, as well as data access for credit, income verification, and other related services. Financial institutions continue to invest in software applications and infrastructure, and global demand for cloud-based solutions in banking continues to increase. IDC estimates that SaaS revenues from the banking sector are projected to increase from $16 billion in 2019 to $32 billion in 2024, representing a



 

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CAGR of 16%. IDC estimates that approximately 60% of SaaS revenues from the banking sector are derived from the United States, where they are projected to increase from $10 billion in 2019 to $19 billion in 2024, representing a CAGR of 14%. Furthermore, according to the EY Global Banking Outlook 2018, 85% of global banks are undertaking digital transformation to modernize their operations and more than 60% of global banks intend to increase investment in cloud technology before 2021.

We conservatively estimate, based on independent analysis from a study we commissioned from Cornerstone Advisors, that the total U.S. domestic addressable market opportunity, in the primary solution categories that our software solutions serve, to be $10 billion. This study by Cornerstone Advisors employed metrics regarding the number of addressable credit unions, banks, and independent mortgage companies; estimated transaction volumes at institutions of various sizes; and estimated transaction and annual fees. This bottoms-up analysis spanned across five market channels, including estimated addressable markets of $5.8 billion for loan origination software (including consumer, mortgage, commercial, marketing automation, loan decisioning and merchant-based buy now, pay later lending), $2.4 billion for account opening and point-of-sale software, $1.0 billion for portfolio and lending performance software, $0.6 billion for collection software, and $0.3 billion for data access software (including consumer data and CRA enablement). This study calculated estimated addressable markets across these five market channels based on a calculation tied to fixed price per application, fixed annual fees, fixed setup fees, or fixed average number of purchasers, depending on the relevant channel.

While the overall software spend within the banking sector has continued to grow, we believe our focus on credit unions provides added strength to our business. According to the NCUA, credit unions’ net worth, defined as the retained earnings balance, has increased $12.1 billion, or 6.8% year-over-year, to $190.3 billion as of December 31, 2020. Additionally, as reported by the NCUA, total assets in federally insured credit unions rose by $278 billion, or 17.7% year-over-year, to $1.8 trillion as of December 31, 2020 and from December 2000 through December 2020, total assets in federally insured credit unions increased by $1.4 trillion, representing a CAGR of 7.5%. These recent trends are also observed over the longer term, with the NCUA reporting that credit unions experienced average annual loan growth of 7.0% and average annual asset growth of 7.5% from 2001 to 2020.

 

 

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Competitive Strengths

Our end-to-end, omni-channel lending platform provides our customers with valuable cross-sell opportunities, third-party technology integrations, and full decisioning capabilities supporting every aspect of the loan origination process. We are differentiated by our strong customer support and extensive integration capabilities as well as our depth of market knowledge from our 20-year operating history and singular focus on lending and credit products. Our position as a leading provider of mission-critical software solutions for financial institutions is built on the following strengths:

 

   

Streamlined consumer lending software. Our automated workflow and integration tools provide our diverse customer base with a robust software infrastructure that saves them time on rudimentary tasks and allows them to compete with financial institutions of any scale. We also save them time and resources by automating the verification of data through third party channels.

 

   

Complete loan decision engine. Our decision engine supports every aspect of the loan origination process by providing deep credit analysis, automated condition generation, automated fee calculations, and non-qualified mortgage product support. Employing our engine enables more efficient credit decisions and more accurately priced loans to facilitate precise and consistent underwriting decisions. Our solutions enable decisions for a variety of loan types, and our mortgage and consumer decision engines work together to drive compelling cross-sell opportunities.

 

   

Comprehensive digital lending software solution. Our solutions are integrated into a comprehensive lending software solution across consumer, mortgage, and account opening, which we believe differentiates us from other technology suppliers to middle-market financial institutions.

 

   

Integrated Partner Marketplace. We have more than 580 partners as of March 31, 2021, including e-signing vendors, insurance providers, dealership integrators, credit card processors, home banking systems, settlement service tools, and more, which integrate into our solutions and bring value to our customers. Our customers can use these integrations and their functionalities through a single platform interface, without needing to access other applications outside of our software solutions. Our approach to integration allows our customers to tailor their solutions to best suit their needs. We have spent more than a decade investing in our Partner Marketplace and we believe we have one of the most comprehensive networks of partners offering the functionality that our customers demand. These integrations enable our customers to extend and augment our solutions to better pursue their specific business strategies. We generate a material amount of revenues from our Partner Marketplace.

 

   

Better customer experience. Our solutions allow our customers to better serve and retain their clients. Our modern UI makes the borrower experience more intuitive and efficient. By helping banks and credit unions deliver compliant loans faster, we help our customers drive borrower satisfaction. Our financial institution customers are, in turn, able to deepen their relationships with existing clients through better service, appropriate cross-selling, and efficient integration with core data.

 

   

Return on investment for banks and credit unions. Our solutions improve results for our customers, including support for regulatory requirements, increased cross-selling opportunities, higher loan volume, and reduced cycle times, churn, and costs. Our solutions provide a consistent user experience, or UX, combined with dynamic workflow and automation to reduce the time spent and errors associated with manual work. This seamless experience allows bankers and credit officers to better serve their clients.



 

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Our software and data delivery solutions for CRAs provide our customers with the ability to offer lenders a one-stop solution for verification services. The ability to provide accurate and compliant credit, income, and other verification information is a requirement for financial institutions who must make rapid underwriting decisions within strict and changing regulatory regimes. We are differentiated by our strong customer service, broad system integrations, and dedication to simplifying inherently complex processes. Our position as a leading provider of mission-critical, software platforms for CRAs is built on the following strengths:

 

   

Maintain compliance in a demanding regulatory environment. We enable our customers to grow faster by providing more responsive service to their clients, enabled by our continuous investment in our software solution capabilities to ensure high compliance with minimal risk. Increased regulation typically means a higher workload for people in financial services because it takes time and effort to adapt business practices that follow the new regulations. Addressing this increased workload and inefficiency drives demand for our workflow automation and productivity. While regulatory compliance remains the responsibility of our customers, our solutions help enable compliance with ease through monthly push updates for most solutions.

 

   

Integrated capabilities. Our partners enable our CRA customers to meet many of their data delivery needs without managing the complexity of accessing services and billing across multiple vendors.

Growth Strategy

We believe there are significant growth opportunities driven by end-market expansion and geographic extension. We seek to capture additional growth driven by new logo acquisition, organic cross-sell, and upsell opportunities with our customers, as well as through potential acquisitions. We intend to continue growing our business by executing on the following strategies:

 

   

Continue adding customers in our target market. We believe there is untapped market potential in the loan origination and digital banking markets. Significant runway exists as financial institutions begin to adopt online lending and account opening practices and require more efficient technologies. We provide these services to institutions of all sizes and complexities. By focusing on better sales execution, providing and allocating resources where needed, and improving marketing efforts, we are confident in our ability to expand our customer base within our target market.

 

   

Expanding our target market. Our current focus is on the middle market, catering predominantly to financial institutions such as community banks and credit unions with assets under management between $100 million and $10 billion. We believe a large opportunity exists in expanding our target market to new customers with less than $100 million or greater than $10 billion in assets under management. In our down-market, smaller institutions commonly use spreadsheets or other inexpensive alternatives. These companies have a smaller volume of loans per month, but there is opportunity to alter our solutions to offer targeted packages with lower implementation fees.

 

   

Pursue unrealized upsell and cross-sell into client base. Our go-to-market strategy and partnerships drive incremental revenue and client cross-sell growth. We have demonstrated our ability to retain customers with strong annual customer retention and to expand existing customers’ solution adoption through upselling and cross-selling. We believe there is further opportunity to expand within and across our existing customer base by cross-selling all consumer loan types, upselling modules of existing products, and promoting the adoption of new products.

 

   

Launch new products. We are focused on introducing new solutions and enhancing services and capabilities in areas including digital lending, data insights, and collections, to further expand our



 

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reach into the consumer and commercial lending markets. We are enhancing our offerings to create additional value for new and existing customers in order to increase our share-of-wallet and further distance ourselves from our competition. In 2020, we delivered significant UX and UI enhancements to our consumer loan origination solution along with performance updates to four major application types. We updated our UX to increase usability, and we are in the process of developing our next generation platform, MeridianLink One, that will integrate all of our current solutions into one digital lending and deposit account opening platform. For more information on this unified, cloud-native SaaS platform, please see the section titled “Business—Technology and Solutions.”

 

   

Expand monetization of Partner Marketplace. We have designed our solutions to act as the gateway for third parties to access our financial institution and CRA customers, accelerating the loan application and decisioning processes and reducing expenses. With over 580 partners as of March 31, 2021, we are able to capitalize on one-time service fees and revenue share in platform partner fees. As we grow our business, we expect to bring on board additional vendor partners driving further monetization opportunities. We also intend to cultivate and leverage network partners to grow our market presence and drive greater sales efficiency.

 

   

Selectively pursue strategic mergers and acquisitions. In addition to developing our solutions organically, we may selectively pursue acquisitions, joint ventures or other strategic transactions that provide additional capabilities or customers, or both. We expect these transactions to focus on innovation to strengthen and expand the functionality and features of our client solutions suite, gain market share, and/or expand our global presence into new markets and geographies. For example, in 2018 we acquired CRIF, and in 2020 we added the indirect lending capabilities of TCI and also acquired the powerful screening platform and API infrastructure from TazWorks.

 

   

Full public cloud migration to drive enhanced capacity, flexibility, and security. As we migrate fully to the public cloud, we seek to expand on our successes and deliver an even better experience for our customers, driven by the highly scalable and configurable nature of our platform, regardless of the size and complexity of the financial institution. Customers will have the ability to digitally serve clients, while automation and digitization capabilities reduce duplicative work and increase efficiency. We believe that the full migration of our solutions to a public cloud, from our current private-public cloud hybrid approach, will further enhance the ability of financial institution employees to work from their office or remotely and serve their clients 24/7/365. We believe this migration will help customers further reduce costs through the added upsell and cross-sell capabilities we intend to introduce, as well as allow customers to benefit from public cloud functionality which includes automatic push of new updates from public cloud partners.

 

   

Substantial runway for increasing penetration domestically and enhancing solutions for international expansion. Today our revenues are all domestic, and the U.S. market provides substantial runway for continued growth. In addition, we believe that enhancing our capabilities to serve customers in international markets represents an opportunity to deliver our solutions and expand our customer base to financial institutions of all sizes and complexities around the world.

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors.” The following is a summary of the principal risks we face:

 

   

We have experienced rapid subscription fee revenue growth in recent periods, and our recent growth rates may not be indicative of our future growth.



 

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Our usage and volume-based pricing can cause revenue fluctuation and may adversely affect our business and operating results.

 

   

Our business is dependent on overall demand for software and therefore reduced spending on software or overall adverse economic conditions may negatively affect our business, operating results and financial condition.

 

   

If we cannot successfully execute on our strategy and continue to develop and effectively market solutions that anticipate and respond to the needs of our customers, our business, operating results and financial condition may suffer.

 

   

Our future revenues and operating results will be harmed if we are unable to acquire new customers, if our customers do not renew their contracts with us, or if we are unable to expand sales to our existing customers or develop new products that achieve market acceptance.

 

   

Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our applications.

 

   

We face significant competition which may adversely affect our ability to add new customers, retain existing customers and grow our business.

 

   

If we are unable to maintain successful relationships with our partners, or if our partners fail to perform, our ability to market, sell and distribute our products and services will be limited, and our business, operating results and financial condition could be harmed.

 

   

A breach or compromise of our security measures or those we rely on could result in unauthorized access to or other compromise of customers’ data or customers’ clients’ data, which may materially and adversely impact our reputation, business and results of operations.

 

   

Failure to protect and enforce our proprietary technology and intellectual property rights could substantially harm our business, operating results and financial condition.

 

   

Real or perceived errors, failures, defects or vulnerabilities in our software solutions could adversely affect our financial results and growth prospects.

 

   

The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remain uncertain.

 

   

Our failure to achieve and maintain an effective system of internal control over financial reporting may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.

 

   

Our debt obligations contain restrictions that impact our business and expose us to risks that could adversely affect our liquidity and financial condition.

 

   

We are highly leveraged and have substantial indebtedness, which reduces our capability to withstand adverse developments or business conditions.



 

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Our customers are highly regulated and subject to a number of challenges and risks. Our failure to comply with laws and regulations applicable to us as a technology provider to financial institutions could adversely affect our business and results of operations, increase costs, and impose constraints on the way we conduct our business.

 

   

Any use of our solutions by our customers in violation of regulatory requirements could damage our reputation and subject us to additional liability.

 

   

Thoma Bravo has significant influence over matters requiring stockholder approval, which may have the effect of delaying or preventing changes of control or limiting the ability of other stockholders to approve transactions they deem to be in their best interest.

If we are unable to adequately address these and other risks we face, our business, results of operations, financial condition and prospects may be harmed.

Our Sponsor

Thoma Bravo is a leading investment firm building on a more than 35-year history of providing capital and strategic support to experienced management teams and growing companies. Thoma Bravo has invested in many fragmented, consolidating industry sectors in the past, but has become known particularly for its history of successful investments in the application, infrastructure and security software and technology-enabled services sectors, which have been its investment focus for more than 15 years. Thoma Bravo manages a series of investment funds representing more than $76 billion of assets under management.

Our charter and bylaws allow Thoma Bravo to set the size of our board of directors and fill any vacancy on our board of directors, including newly created seats, for so long as Thoma Bravo beneficially owns at least 30% of the outstanding shares of our common stock. Upon Thoma Bravo ceasing to own at least 30% of the outstanding shares of our common stock, only our board of directors will be allowed to fill vacant directorships.

Channels for Disclosure of Information

Following the completion of this offering, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website (www.meridianlink.com), blog posts on our website, press releases, public conference calls, webcasts, our Twitter feed (@meridianlink), our Facebook page (www.facebook.com/meridianlink/), and our LinkedIn page (www.linkedin.com/company/meridianlink).

The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media and others to follow the channels listed above and to review the information disclosed through such channels.

Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address, Twitter feed, Facebook page, and LinkedIn page in this prospectus are inactive textual references only. You should not consider information contained on our website or our social media pages to be part of this prospectus or in deciding whether to purchase shares of our common stock.

Corporate Information

Our principal executive offices are located at 1600 Sunflower Avenue, #200, Costa Mesa, CA 92626, and our telephone number at that address is (714) 708-6950. Our website address is www.meridianlink.com.



 

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The MeridianLink design logo and our other registered or common law trademarks, service marks or trade names appearing in this prospectus are the property of MeridianLink, Inc. This prospectus includes our trademarks and trade names, including, without limitation, MeridianLink, MeridianLink Collect, MeridianLink Mortgage, MeridianLink Consumer, MeridianLink Opening, DecisionLender, which are our property and are protected under applicable intellectual property laws. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

Corporate Conversion

We currently operate as a Delaware limited liability company under the name Project Angel Parent, LLC, which directly and indirectly holds all of the equity interests in our operating subsidiaries. Immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, MeridianLink, Inc., the operating company and the indirect wholly owned subsidiary of Project Angel Parent, LLC, will change its name to ML California Sub, Inc., and Project Angel Parent, LLC will convert into a Delaware corporation pursuant to a statutory conversion and will change its name to MeridianLink, Inc. In this prospectus, we refer to all of the transactions related to our conversion into a corporation as the Corporate Conversion. Following the Corporate Conversion, we will remain a holding company and will continue to conduct our business through our operating subsidiaries. For more information, see the section titled “Corporate Conversion.”

Following the completion of the Corporate Conversion and prior to the closing of this offering, the Thoma Bravo Funds will own approximately     % of MeridianLink, Inc.’s common stock. Additionally, MeridianLink, Inc. will have several wholly owned direct and indirect subsidiaries that are legacies from the corporate structure that existed prior to this offering. See the section titled “Corporate Conversion.”

Emerging Growth Company

The Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including not being required to have our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, certain reduced disclosure requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and exemptions from the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We intend to take advantage of these exemptions until we are no longer an emerging growth company.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have at least $1.07 billion in annual revenues; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.



 

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Status as a Controlled Company

Assuming the sale by us of      shares of common stock in this offering, Thoma Bravo will beneficially own      shares of our common stock, representing approximately     % of the voting power of our company following the completion of this offering, and, as such we will be a “controlled company” as of the completion of the offering under the Sarbanes-Oxley Act and the rules of the New York Stock Exchange, or the NYSE. As a controlled company, we will not be required to have a majority of independent directors or to form an independent compensation committee or nominating and corporate governance committee. As a controlled company, we will remain subject to the rules of the Sarbanes-Oxley Act and the NYSE that require us to have an audit committee composed entirely of independent directors. Under these rules, we must have at least one independent director on our audit committee by the date our common stock is listed on the NYSE, at least two independent directors on our audit committee within 90 days of the listing date, and at least three directors, all of whom must be independent, on our audit committee within one year of the listing date. We expect to have five independent directors upon the closing of this offering, at least two of whom will qualify as independent for audit committee purposes.

If at any time we cease to be a controlled company, we will take all action necessary to comply with the Sarbanes-Oxley Act and rules of the NYSE, including by having a majority of independent directors and ensuring we have a compensation committee and a nominating and corporate governance committee, each composed entirely of independent directors, subject to a permitted “phase-in” period. See the section titled “Management—Status as a Controlled Company.”



 

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THE OFFERING

 

Common stock offered by us

                 shares

 

Common stock offered by the selling stockholders

                 shares

 

Option to purchase additional shares from the selling stockholders

The selling stockholders have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to                  additional shares of common stock.

 

Common stock to be outstanding after this offering

                 shares.

 

 

Use of proceeds

We estimate that the net proceeds from the sale of shares of our common stock in this offering will be approximately $         million, assuming an initial public offering price of $         per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use a portion of our net proceeds from this offering to repay $         million of the borrowings outstanding under our first lien credit agreement, and all of the borrowings outstanding under our second lien credit agreement. We intend to use the balance of our net proceeds for general corporate purposes, including working capital, operating expenses and capital expenditures, and to acquire complementary businesses, products, services or technologies. We will not receive any of the proceeds from the sale of the shares being offered by the selling stockholders. See the section titled “Use of Proceeds” for additional information.

 

Controlled company

After this offering, Thoma Bravo will beneficially own approximately     % of the voting power of our common stock, assuming the sale by us of                  shares of common stock in this offering. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See the section titled “Management—Status as a Controlled Company.”

 

Reserved share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to     % of the shares offered by this prospectus for sale to some of our directors, officers, employees, sponsors, and friends and family of officers, directors, and beneficial owners. Shares purchased by our directors and officers in the reserved share program will be subject to lock-up restrictions described in this prospectus. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. See the section titled “Underwriting—Reserved Shares.”


 

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Risk factors

See the section titled “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Proposed New York Stock Exchange symbol

“MLNK”

The number of shares of our common stock to be outstanding after this offering is based on              shares of common stock outstanding as of March 31, 2021, and excludes:

 

   

             shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2021, at a weighted average exercise price of $         per share;

 

   

             shares of our common stock that will become available for future issuance under our 2021 Stock Option and Incentive Plan, which will become effective prior to the effectiveness of the registration statement of which this prospectus is a part; and

 

   

             shares of our common stock that will become available for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective prior to the effectiveness of the registration statement of which this prospectus is a part.

Our 2021 Stock Option and Incentive Plan and 2021 Employee Stock Purchase Plan each provides for annual automatic increases in the number of shares of our common stock reserved thereunder, as more fully described in the section titled “Executive Compensation—Employee Benefit and Equity Compensation Plans.”

Except as otherwise indicated, all information contained in this prospectus assumes or gives effect to:

 

   

the filing of our certificate of incorporation and the effectiveness of our bylaws upon the Corporate Conversion;

 

   

no exercise of options described above; and

 

   

the completion of the transactions described in the section titled “Corporate Conversion”.



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables summarize our consolidated financial data and other data. We derived the summary consolidated statements of operations data for the years ended December 31, 2019 and 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the three months ended March 31, 2020 and 2021, and our consolidated balance sheet data as of March 31, 2021 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In our opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contains all adjustments, consisting only of normal and recurring adjustments necessary for a fair presentation of such interim financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future and our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021 or any other interim periods. The following summary consolidated financial data and other data should be read in conjunction with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

Consolidated statements of operations data    Year Ended
December 31,
    Three Months Ended
March 31,
 
(in thousands, except share and unit and per share and per
unit amounts)
   2019     2020     2020     2021  
                 (unaudited)  

Revenues, net

   $ 152,731     $ 199,340     $ 43,618     $ 67,811  

Cost of revenues:

        

Subscription and services(1)

     39,551       49,480       11,135       16,614  

Amortization of developed technology

     7,771       8,874       2,073       2,862  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     47,322       58,354       13,208       19,476  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     105,409       140,986       30,410       48,335  

Operating expenses:

        

General and administrative(1)

     59,536       54,640       13,625       18,345  

Research and development(1)

     15,966       18,691       4,307       6,986  

Sales and marketing(1)

     9,589       9,371       2,024       3,599  

Loss on termination of financing obligation due to related party

     —         5,755       —         —    

Impairment of trademarks

     —         5,362       —         —    

Acquisition related costs

     —         1,579       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     85,091       95,398       19,956       28,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     20,318       45,588       10,454       19,405  

Other (income) expense, net:

        

Other income

     (16     (41     (1     (20

Interest expense, net

     38,053       34,686       8,857       10,062  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     38,037       34,645       8,856       10,042  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) from income taxes

     (17,719     10,943       1,598       9,363  
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision (benefit) from income taxes

     (5,115     1,792       272       2,132  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (12,604     9,151       1,326       7,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

Class A preferred return

     (31,460     (34,411     (8,285     (8,932
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common unitholders

   $ (44,064   $ (25,260   $ (6,959   $ (1,701
  

 

 

   

 

 

   

 

 

   

 

 

 


 

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Consolidated statements of operations data    Year Ended
December 31,
    Three Months Ended
March 31,
 
(in thousands, except share and unit and per share and per
unit amounts)
   2019     2020     2020     2021  
                 (unaudited)  

Net loss per common unit:

        

Net loss attributable to common unitholders, basic and diluted

   $ (0.44   $ (0.25   $ (0.07   $ (0.02

Weighted average units outstanding:

        

Basic and diluted

     99,899,718       102,256,260       101,601,874       103,102,460  

Pro forma net loss per share of common stock

        

Pro forma net loss per share, basic and diluted (unaudited)(2)

        

Pro forma weighted average shares outstanding:

        

Basic and diluted (unaudited)(2)

        

 

(1) 

Includes unit-based compensation as follows:

 

     Years Ended
December 31,
     Three Months Ended
March 31,
 
(in thousands)    2019      2020      2020      2021  
                   (unaudited)  

Cost of revenues

   $ 87      $ 180      $ 27      $ 72  

General and administrative

     1,307        1,952        472        353  

Research and development

     169        339        72        82  

Sales and marketing

     228        370        69        136  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total unit-based compensation expense

   $ 1,791      $ 2,841      $ 640      $ 643  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

See the section titled “Selected Consolidated Financial and Other Data—Unaudited Pro Forma Net Loss Per Share” contained elsewhere in this prospectus for further information on the calculation of pro forma net loss per share and pro forma weighted-average number of shares outstanding.

 

    

As of March 31, 2021

 
    

(unaudited)

 
Consolidated balance sheet data (in thousands)    Actual     Pro Forma(1)      Pro Forma
As
Adjusted(2)(3)
 

Cash and cash equivalents

   $ 73,510                                                 

Total assets

     997,162       

Working capital

     35,466       

Total debt, including current portion

     617,593       

Accumulated deficit

     (23,119     

Total members’ deficit

     (20,416     

 

(1) 

The pro forma column in the consolidated balance sheet data table above reflects (i) the completion of the Corporate Conversion and (ii) the filing and effectiveness of our certificate of incorporation in Delaware, which will occur immediately prior to the completion of this offering.

(2) 

The pro forma as adjusted column reflects: (i) the pro forma adjustments set forth in footnote (1) above; (ii) the sale of                shares of our common stock in this offering at an assumed initial public offering price per share of $                (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (iii) the application of the net proceeds from this offering as set forth under the section titled “Use of Proceeds.”



 

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(3) 

The pro forma as adjusted information discussed above is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price per share of $                (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), would increase or decrease, as applicable, each of our pro forma as adjusted cash and cash equivalents, total assets, working capital, and total members’ deficit by approximately $                million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1.0 million share increase or decrease in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of our pro forma as adjusted cash and cash equivalents, total assets, working capital, and total members’ deficit by approximately $                million, assuming no change in the assumed initial public offering price per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

In connection with the Corporate Conversion and immediately prior to our conversion to a corporation, we will convert each outstanding Class A Unit into a number of Class B Units equal to the result of the accrued preferred return price per Class A Unit divided by the projected initial public offering price per share of our common stock in this offering. Each Class B Unit will then convert into a share of common stock in connection with our conversion to a corporation. The preferred return price for each Class A Unit is equal to the future value of $1,000 at a 9% interest rate compounded quarterly over the time passed since the issuance of such unit. We refer to the conversion of all of our Class A Units into Class B Units as the “Preferred Conversion.” The Preferred Conversion is assumed to occur throughout this prospectus using the assumed initial public offering price per share of $             (the midpoint of the estimated offering price range set forth on the cover page of this prospectus).

 

 

Because the number of shares of common stock into which a Class B Unit that is converted from a Class A Unit in the Preferred Conversion will be determined by reference to the projected initial public offering price in this offering, a change in the projected initial public offering price would have a corresponding impact on the number of outstanding shares of common stock presented in this prospectus after giving effect to this offering and the Corporate Conversion (of which we consider the Preferred Conversion a part). The following is the number of shares of our common stock that would be outstanding immediately after the Corporate Conversion but before the consummation of this offering, assuming the initial public offering prices for our common stock shown below and the conversion occurring on __, 2021:

 

Initial public offering price

   $            $            $        

Shares of common stock outstanding

                                   


 

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RISK FACTORS

Investing in our common stock involves substantial risks. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this prospectus, including the financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. Any of the risk factors we describe below could have a material adverse effect on our business, financial condition, results of operations, cash flow, and prospects. The market price of our common stock could decline if one or more of these risks or uncertainties develop into actual events, causing you to lose all or part of your investment. While we believe these risks and uncertainties are especially important for you to consider, we may face other risks and uncertainties that could have a material adverse effect on our business. Certain statements contained in the risk factors described below are forward-looking statements. See the section titled “Special Note Regarding Forward-Looking Statements” for more information.

Risks Related to Our Financial Position and Need for Additional Capital

Our debt agreements contain restrictions that limit our flexibility.

Our debt agreements contain, and any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our subsidiaries’ ability to, among other things:

 

   

incur additional indebtedness;

 

   

incur liens;

 

   

engage in mergers, consolidations, liquidations, or dissolutions;

 

   

pay dividends and distributions on, or redeem, repurchase or retire our capital stock;

 

   

make investments, acquisitions, loans, or advances;

 

   

create negative pledge or restrictions on the payment of dividends or payment of other amounts owed from subsidiaries;

 

   

sell, transfer or otherwise dispose of assets, including capital stock of subsidiaries;

 

   

make prepayments of material debt that is subordinated with respect to right of payment or liens, or is unsecured;

 

   

engage in certain transactions with affiliates;

 

   

modify certain documents governing material debt that is subordinated with respect to right of payment;

 

   

change our fiscal year; and

 

   

change our lines of business.

As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

 

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We may not be able to secure sufficient additional financing on favorable terms, or at all, to meet our future capital needs.

We may require additional capital in the future to pursue business opportunities or acquisitions or respond to challenges and unforeseen circumstances. We may also decide to engage in equity or debt financings or enter into additional credit facilities for other reasons. We may not be able to secure additional debt or equity financing in a timely manner, on favorable terms, or at all. Any debt financing we obtain in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities, including potential acquisitions.

We are highly leveraged and have substantial indebtedness, which reduces our capability to withstand adverse developments or business conditions.

We have incurred substantial amounts of indebtedness to finance our operations, acquisitions, and other businesses. At March 31, 2021, our total aggregate indebtedness was approximately $617.6 million—see details in our consolidated financial statements and related notes included elsewhere in this prospectus. Because we are highly leveraged, our payments on our indebtedness are significant in relation to our revenues and cash flow, which exposes us to significant risk in the event of downturns in our businesses, our industry, or the economy generally, since our cash flows would decrease, but our required payments under our indebtedness would not.

Economic downturns may impact our ability to comply with the covenants and restrictions in the agreements governing our indebtedness and may impact our ability to pay or refinance our indebtedness as it comes due. If we do not repay or refinance our debt obligations when they become due and do not otherwise comply with the covenants and restrictions in the agreements governing our indebtedness, we would be in default under those agreements and the underlying debt could be declared immediately due and payable. In addition, any default under any of the agreements governing our indebtedness could lead to an acceleration of debt under any other debt instruments or agreements that contain cross-acceleration or cross-default provisions. If the indebtedness incurred under the agreements governing our indebtedness were accelerated, we may not have sufficient cash to repay amounts due thereunder. To avoid a default, we could be required to defer capital expenditures, sell assets, seek strategic investments from third parties or otherwise reduce or eliminate discretionary uses of cash. However, if such measures were to become necessary, there can be no assurance that we would be able to sell sufficient assets or raise strategic investment capital sufficient to meet our scheduled debt maturities as they come due.

Our overall leverage and the terms of our financing arrangements could also:

 

   

make it more difficult for us to satisfy obligations under our outstanding indebtedness;

 

   

limit our ability to obtain additional financing in the future for working capital, capital expenditures, or acquisitions;

 

   

limit our ability to refinance our indebtedness on terms acceptable to us or at all;

 

   

limit our ability to adapt to changing market conditions;

 

   

restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;

 

   

require us to dedicate a significant portion of our cash flow from operations to paying the principal of and interest on our indebtedness, thereby limiting the availability of our cash flow to fund future capital expenditures, working capital, and other corporate purposes;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and our industry; and

 

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place us at a competitive disadvantage compared with competitors that have a less significant debt burden.

In addition, a substantial portion of our indebtedness bears interest at variable rates. If market interest rates increase, our variable-rate debt will have higher debt service requirements, which could adversely affect our cash flows and financial condition. For more information, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.”

We have a history of operating losses and may not sustain profitability in the future.

Prior to year ended December 31, 2020, we have experienced net losses. For example, we generated a net loss of $12.6 million for fiscal year ended December 31, 2019. We had an accumulated deficit of $23.1 million at March 31, 2021. We had an accumulated deficit of $39.4 million and $30.3 million at December 31, 2019 and 2020, respectively. While we had positive net income for the fiscal year ended December 31, 2020 and the three months ended March 31, 2021, we will need to maintain revenue levels in future periods in order to maintain profitability, and, even if we do, we may not be able to maintain our level of profitability. We intend to continue to expand our sales and research and development headcount and increase our marketing activities. We will also face increased costs associated with growth, the expansion of our customer base, and the costs of being a public company. Our efforts to grow our business may be more costly than we expect and we may not be able to increase our revenues enough to offset our increased operating expenses. We may continue to incur losses in future periods as we continue to invest in research and development and we cannot predict whether or when we will be able to achieve consistent profitability. If we are unable to achieve sustained profitability, the value of our business and common stock may significantly decrease.

The phase-out, replacement, or unavailability of the London Inter-Bank Offered Rate, or LIBOR, could affect interest rates under our revolving credit facility, as well as our ability to obtain future debt financing on favorable terms.

We are subject to interest rate risk on floating interest rate borrowings under our credit facilities. Borrowings under our credit facilities use LIBOR as a benchmark for establishing the interest rate. In July 2017, the Financial Conduct Authority (the regulatory authority over LIBOR) stated that it would phase out LIBOR as a benchmark after 2021 to allow for an orderly transition to an alternative reference rate. Our revolving credit facilities provide for a mechanism to amend the facilities to reflect the establishment of an alternative rate of interest upon the occurrence of certain events related to the phase-out of LIBOR. However, we have not yet pursued any technical amendment or other contractual alternative to address this matter and are currently evaluating the impact of the potential replacement of the LIBOR interest rate. In the United States, the Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate, or SOFR, as an alternative to LIBOR for use in contracts that are currently indexed to U.S. dollar LIBOR and has proposed a market transition plan to SOFR. It is not presently known whether SOFR or any other alternative reference rates that have been proposed will attain market acceptance as replacements of LIBOR. In addition, the overall financial markets may be disrupted as a result of the phase-out or replacement of LIBOR. Uncertainty as to the nature of such phase out and selection of an alternative reference rate, together with disruption in the financial markets, could have a material adverse effect on our financial condition, results of operations and cash flows, and may adversely affect our ability to obtain future debt financing on favorable terms.

Risks Related to Our Business and Industry

If we fail to increase the number of our customers or retain existing customers, our business may be harmed.

Our growth depends in large part on increasing the number of customers using our software solutions. To attract customers to our solutions, we must convince them that the utility of, and access to, our software solutions can assist them in their digital transformations, help create new revenue streams, and increase

 

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engagement with their customers. In particular, we must enhance the features and functionality of our software solutions, convince financial institutions of the benefits of our software solutions and encourage them to switch from competing loan origination, digital lending, and data analytics solutions or to forgo using more traditional processes and procedures, including (with respect to the loan origination business) paper, facsimile, courier, mail, and e-mail processing.

Due to the fragmented nature of the consumer lending (including mortgage) and consumer reporting agency industries, many industry participants may not be familiar with our software solutions and the benefits of our solutions. Any consolidation in our industry, however, could decrease our market advantage and may impact our competitive position. Some of our current and potential customers have developed, and may continue to develop, their own proprietary technologies and may one day become our competitors. Furthermore, some of our customers and potential customers have increasing market share in their respective markets that could be leveraged to introduce, directly or indirectly, alternative solutions to the use of our services in the short term with the potential to replace our solutions within their organizations in the long term. As our customers increase their spend with us, there may be internal pressure to evaluate and potentially create their own internal solutions as a cost-savings measure. We cannot assure you that we will be successful in attracting new customers or retaining existing customers, and increased competition from both competitors and any internal development efforts by our current customers could harm our business.

Additionally, with increased competition, existing customers may decide not to continue to use our software solutions in favor of other alternatives for financial or other reasons. Customer attrition could impact the performance of our business in the future. We have agreements in place with various product partners with respect to the integration between their businesses and our solutions, such as e-signing vendors, insurance providers, dealership integrators, credit card processors, home banking systems, and settlement service tools. Most of these contracts are not long term or are subject to termination rights. An unexpected termination, or a failure to renew, of a significant number of our agreements or relationships with these platform partners could have an adverse effect on our business as our customers may find our solutions less valuable without these integrations. If we lose existing platform partners due to terminations or failures to renew our agreements, we would also lose revenues associated with such platform partners, which could have a material adverse impact on our results of operations and financial condition. In addition, our future development efforts are focused on our cloud-based offerings and, as a result, we do not intend to invest in upgrading certain legacy products or developing added functionality for them, including legacy products acquired through past strategic transactions such as the acquisition of CRIF in 2018. As a result, customers using these legacy products may determine that these legacy offerings no longer satisfy their needs. If we are unsuccessful in transitioning these customers to our newer, cloud-based offerings, these customers may cease doing business with us. Therefore, we must continue to demonstrate to our customers that using our solutions is the most effective and cost-efficient way to maximize their results and if we are not successful our business and results of operations could be materially and adversely impacted.

Our continued growth may be adversely impacted by significant competition in our market which may affect our ability to retain existing customers or expand existing customer usage of our solutions.

We have experienced rapid growth in recent periods. Our net revenues were $152.7 million and $199.3 million for 2019 and 2020, respectively, representing a growth rate of 30.5%. Our net revenues were $43.6 million and $67.8 million for the three months ended March 31, 2020 and 2021, respectively, representing a 55.5% growth rate. In future periods, we may not be able to sustain net revenue growth consistent with recent history, or at all. We believe our net revenue growth depends on several factors, including, but not limited to, our ability to add new customers and to expand our existing customers’ usage of our solutions. The markets in which we compete are highly competitive, fragmented, evolving, complex, and defined by rapidly changing technology and customer demands, and we expect competition to continue to increase in the future. A number of companies have developed or are developing solutions and services that currently, or in the future may, compete with some or all of our solutions. This competition could result in increased pricing pressure, reduced profit margins,

 

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increased sales and marketing expenses and our failure to increase, or loss of, market share, any of which could adversely affect our business, operating results, and financial condition.

Our competitors may have longer-term and more extensive relationships with potential customers that provide them with an advantage that we may be unable to overcome. Further, to the extent that one of our competitors establishes or strengthens a cooperative relationship with, or acquires one or more software application, data analytics, compliance, or network vendors, it could adversely affect our ability to compete.

We may also face competition from companies entering our market. Many existing and potential competitors enjoy substantial competitive advantages, such as:

 

   

larger sales and marketing budgets and resources;

 

   

the ability to bundle competitive offerings;

 

   

greater brand recognition and longer operating histories;

 

   

lower labor and development costs;

 

   

greater resources to make acquisitions;

 

   

larger and more mature intellectual property portfolios; and

 

   

substantially greater financial, technical, management and other resources.

These competitive pressures in our markets or our failure to compete effectively may result in fewer customers, reduced revenues and gross profit, and loss of market share. Any failure to meet and address these factors could materially and adversely affect our business, operating results, and financial condition.

Our future performance will be highly dependent on our ability to grow revenues from new feature functionality and deeper adoption of our software solutions.

We must continuously develop, market, and sell new features and functionalities to our existing software solutions that respond to the changing needs of our customers and offer better functionality than competing offerings from other providers. For example, we are in the process of developing our next generation platform, MeridianLink One—a unified, cloud-native SaaS platform—and we only began to offer streamlined consumer cross-sell functionality within our mortgage loan origination system to provide more consumer options in the last quarter of 2020. Revenues from this new platform have not been significant to date and we cannot assure you that this solution or future solutions will achieve market acceptance and be successful. In the event these efforts are not successful, our business and growth prospects would be adversely affected.

If the market for cloud-based solutions develops more slowly than we expect or changes in a way that we fail to anticipate, our sales would suffer and our results of operations would be adversely affected.

We do not know whether our prospective customers will continue to adopt cloud-based financial products such as our software solutions, or whether the market will change in ways we do not anticipate. Many potential customers have invested substantial personnel and financial resources in legacy software, and these institutions may be reluctant, unwilling or unable to convert from their existing systems to our solutions. Furthermore, these potential customers may be reluctant, unwilling or unable to use cloud-based financial solutions due to various concerns such as the security of their data and reliability of the delivery model. These concerns or other considerations may cause prospects to choose not to adopt cloud-based financial products such as ours or to adopt them more slowly than we anticipate, either of which would adversely affect us. Our future success also depends on our ability to sell additional solutions and functionality to our current and prospective

 

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customers. As we create new solutions and enhance our existing solutions to meet anticipated market demand, these solutions and enhancements may not be attractive to customers. In addition, promoting and selling new and enhanced functionality may require increasingly costly sales and marketing efforts, and if customers choose not to adopt this functionality our business and results of operations could suffer. If potential customers are unwilling or unable to transition from their legacy systems, or if the demand for our solutions does not meet our expectations, our results of operations and financial condition will be adversely affected.

We may not accurately predict the long-term rate of customer subscription renewals or adoption of our software solutions, or any resulting impact on our revenues or operating results.

Our customers have no obligation to renew their subscriptions for our software solutions after the expiration of the initial or current subscription term, and our customers, if they choose to renew at all, may renew for shorter subscription terms, or on less favorable usage-based or volume-based pricing terms. Since we have only been tracking our retention rates since November of 2020, we have limited historical data with respect to rates of customer subscription renewals and cannot be certain of anticipated renewal rates. Our renewal rates may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our pricing or our software solutions or their ability to continue their operations or spending levels. Strategic acquisitions, such as our recent acquisition of TCI, can further complicate our ability to predict customer subscription renewals. If our customers do not renew their subscriptions for our software solutions on similar pricing terms, our revenues may decline and our business could suffer.

Additionally, as the markets for our solutions develop, or as new or existing competitors introduce new solutions or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or we may be unable to attract new customers based on the same subscription models that we have used historically or at fee levels that are consistent with our pricing models and operating budget. Moreover, large or influential customers may demand more favorable pricing or other contract terms from us. As a result, we may in the future be required to change our pricing model, reduce our prices or accept other unfavorable contract terms, any of which could adversely affect our revenues, gross margin, profitability, financial position, and/or cash flow. Our pricing strategy for new solutions we introduce may prove to be unappealing to our potential customers and our competitors could choose to bundle certain solutions and services competitive with ours. If this were to occur, it is possible that we would have to change our pricing strategies or reduce our prices, which could harm our business, operating results, and growth prospects.

Because we recognize certain subscription fee revenues over the term of the contract, downturns or upturns in our business may not be fully reflected in our results of operations until future periods.

We generally recognize revenues from subscription fees ratably over the terms of our customer contracts, which typically have an initial term of three years. Our subscription fee revenues include annual base fees, fees per search or per loan application or per closed loan (with contractual minimums based on volume) that are charged on a monthly basis and platform partner fees. We earn additional revenues based on the volume of applications and closed loans processed above our customers’ contractual minimums. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date our product is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met. Additional fees for monthly usage above the levels included in the standard subscription fee are recognized as revenue in the month when the usage amounts are determined and reported. As such, a portion of the subscription fee revenues we report each quarter are derived from the recognition of deferred revenues relating to subscriptions activated in previous quarters. Consequently, a reduction in customer subscriptions in any single quarter may only have a small impact on our revenues for that quarter. However, such a decline will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales or market acceptance of our software solutions may not be fully reflected in our results of operations until future periods.

 

 

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We derive all of our revenues from customers in the financial services industry, and any downturn or consolidation or decrease in technology spend in the financial services industry could adversely affect our business.

All of our revenues are derived from customers in the financial services industry whose industry has experienced significant pressure in recent years due to economic uncertainty, low interest rates, liquidity concerns, and increased regulation. In the past, financial institutions have experienced consolidation, distress, and failure. It is possible these conditions may reoccur. If any of our customers merge with or are acquired by other entities, such as financial institutions that have internally developed banking technology products or that are not our customers or use our software solutions less, we may lose business. Additionally, changes in management of our customers could result in delays or cancellations of the implementation of our software solutions. It is also possible that the larger financial institutions that result from business combinations could have greater leverage in negotiating price or other terms with us or could decide to replace some or all of the elements of our software solutions. Our business may also be materially and adversely affected by weak economic conditions in the financial services industry. Any downturn in the financial services industry may cause our customers to reduce their spending on technology or cloud-based financial products or to seek to terminate or renegotiate their contracts with us. Additionally, a prolonged economic slowdown may result in reduced consumer demands for loans, which would negatively impact our revenues from existing customers due to the volume-based aspect of our customer agreements. Moreover, even if the overall economy is robust, economic fluctuations caused by things such as the U.S. Federal Reserve lowering interest rates may cause potential new customers and existing customers to become less profitable and therefore forego or delay purchasing our software solutions or reduce the amount of spend with us, which would materially and adversely affect our business.

The markets in which we participate are intensely competitive and highly fragmented, and pricing pressure, new technologies, or other competitive dynamics could adversely affect our business and results of operations.

We currently compete with providers of technology and products in the financial services industry, primarily point solution vendors that focus on building functionality that competes with specific components of our solutions. From time to time, we also compete with systems internally developed by financial institutions. Many of our competitors have significantly more financial, technical, marketing, and other resources than we have, may devote greater resources to the development, promotion, sale, and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we do.

We may also face competition from new companies entering our markets, which may include large established businesses that decide to develop, market or resell cloud-based banking technology, acquire one of our competitors, or form a strategic alliance with one of our competitors. In addition, new companies entering our markets may choose to offer cloud-based consumer lending and related products at little or no additional cost to the customer by bundling them with their existing products, including adjacent financial services technologies. Competition from these new entrants may make attracting new customers and retaining our current customers more difficult, which may adversely affect our results of operations.

If we are unable to compete in this environment, sales and renewals of our software solutions could decline and adversely affect our business and results of operations. With the introduction of new technologies and potential new entrants into the cloud-based financial products market, we expect competition to intensify in the future, which could harm our ability to increase sales and achieve profitability.

 

 

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As the number of customers that we serve increases, we may encounter implementation challenges, and we may have to delay revenue recognition for some complex engagements, which would harm our business and operating results.

We may face unexpected implementation challenges related to the complexity of our customers’ implementation and integration requirements. Our implementation expenses increase when customers have unexpected data, hardware or software technology challenges, or complex or unanticipated business requirements. In addition, certain of our customers require complex acceptance testing related to the implementation of our software solutions. Implementation delays may also require us to delay revenue recognition under the related customer agreement longer than expected. Further, because we do not fully control our customers’ implementation schedules, if our customers do not allocate the internal resources necessary to meet implementation timelines or if there are unanticipated implementation delays or difficulties, our revenue recognition may be delayed. Any difficulties or delays in implementation processes could cause customers to delay or forego future purchases of our software solutions, which would adversely affect our business, operating results, and financial condition.

Our product partners may change their dependence on our system for providing service to their customers, which could harm our business and operating results.

Our continued success will depend in part on our ability to retain a number of key product partners. In addition, we believe that our future success will depend in large part on our ability to attract product partners who utilize our system to service their customers, driving further volumes through our platform. Value associated with our platform is derived from the ability of our customers to access these product partners through our solutions. There can be no assurance that we will be successful in attracting and retaining such partners. The loss of certain key product partners or our inability to attract or retain other product partners could have a material adverse effect on our business, operating results, and financial condition.

Our sales cycle can be unpredictable, time-consuming, and costly, which could harm our business and operating results.

Our sales process involves educating prospective customers and existing customers about the use, technical capabilities, and benefits of our software solutions. Prospective customers often undertake a prolonged evaluation process, which typically involves not only our software solutions, but also those of our competitors and typically lasts from six to nine months or longer. We may spend substantial time, effort, and money on our sales and marketing efforts without any assurance that our efforts will produce any sales. It is also difficult to predict the level and timing of sales opportunities that come from our referral partners. Events affecting our customers’ businesses may occur during the sales cycle that could affect the size or timing of a purchase, contributing to more unpredictability in our business and operating results. As a result of these factors, we may face greater costs, longer sales cycles, and less predictability in the future.

Risks Related to Regulation and Taxation

Privacy, information security and data protection concerns, data collection and transfer restrictions, and related domestic regulations may limit the use and adoption of our software solutions and adversely affect our business and results of operations.

Personal privacy, information security, and data protection are significant issues in the United States where we offer our solutions. The regulatory framework governing the collection, processing, storage, and use of certain information, particularly financial and other personally identifiable information, or PII, is rapidly evolving. Any failure or perceived failure by us to comply with applicable privacy, information security or data protection laws, regulations or industry standards may materially and adversely affect our business and results of operations, and result in reputational harm, governmental investigations and enforcement actions, litigation, claims, fines and penalties, or adverse publicity.

 

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We expect that there will continue to be new proposed and adopted laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States. For example, California enacted the California Consumer Privacy Act, or CCPA, which went into effect in January 2020 and, among other things, requires companies covered by the legislation to provide new disclosures to California consumers and afford such consumers new rights of access and deletion for personal information, as well as the right to opt-out of certain sales of personal information. Additionally, on November 3, 2020 the California Privacy Rights Act, or CPRA, was approved by California voters. The CPRA amends and expands the CCPA. The CCPA and the CPRA will require us to modify and augment our practices and policies and incur substantial costs and expenses in an effort to comply or respond to further changes to laws or regulations.

We cannot yet fully determine the impact these or future laws, rules and regulations may have on our business or operations. Any such laws, rules, and regulations may be inconsistent among different jurisdictions, subject to new or differing interpretations, or conflict with our current or future practices. Additionally, we may be bound by contractual requirements applicable to our collection, use, processing, and disclosure of various types of information, including financial and PII, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters that may further change as laws, rules and regulations evolve.

Any failure or perceived failure by us, our third-party service providers, or any other third parties with which we do business, to comply with these laws, rules, and regulations, or with other obligations to which we or such third parties are or may become subject, may result in claims, actions, investigations, and other proceedings or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of fines, penalties, or other liabilities. In addition, any such claims, actions, investigations, other proceedings, or other claims, particularly to the extent we were found to be in violation of any laws, rules, regulations or obligations, or otherwise liable for fines, penalties, or damages, would damage our reputation and adversely affect our business and results of operations.

Additionally, if in the future we seek to sell our solutions outside of the United States, we would face similar or potentially more stringent laws and regulations relating to personal privacy, information security, and data protection and we cannot be certain we would be able to adequately address these laws and regulations as part of any international expansion.

Our customers are highly regulated and subject to a number of challenges and risks. Our failure to comply with laws and regulations applicable to us as a technology provider to financial institutions could adversely affect our business and results of operations, increase costs, and impose constraints on the way we conduct our business.

Our customers and prospective customers are highly regulated and are generally required to comply with stringent regulations in connection with performing business functions that our software solutions address. As a provider of technology to financial institutions, and as a result of obligations under some of our customer contracts, we are required to comply with certain provisions of the Gramm-Leach-Bliley Act, or GLBA, related to the privacy and security of certain consumer information, in addition to other contractual obligations that relate to our customers’ obligations under the GLBA and other laws and regulations to which they are subject. We also may be subject to other laws and regulations, including those relating to privacy and data security, because of the software solutions we provide to financial institutions.

Matters subject to review and examination by federal and state financial institution regulatory agencies and external auditors include our internal information technology controls in connection with our performance of data processing services, the agreements giving rise to those processing activities, and the design of our software solutions. Any inability to satisfy these examinations and maintain compliance with applicable regulations could adversely affect our ability to conduct our business, including attracting and maintaining customers. If we have to make changes to our internal processes and software solutions as result of these regulations, we could be required to invest substantial additional time and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.

 

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Our indirect, wholly-owned subsidiary, Professional Credit Reporting Inc., functions as a consumer reporting agency and, as a result, is subject to rules and regulations applicable to consumer reporting agencies, such as the Fair Credit Reporting Act, or FCRA. In addition, in connection with the closing of our acquisition of the assets of TazWorks, we may have additional exposure to FCRA. Other than these exposures to FCRA, we have adopted the position that we are not otherwise subject directly to the FCRA in our position as a provider of technology to financial institutions. It is possible that this position may be challenged by regulatory authorities or others, however, which could result in regulatory investigations and other proceedings, claims, and other liability, and which could require us to redesign our solutions and otherwise substantially modify our operations, processes, and solutions. This could require dedication of substantial funds and other resources, and time of management and technical personnel, and could be highly disruptive to our operations. This could adversely affect our business and results of operations.

The evolving, complex, and often unpredictable regulatory environment in which our customers operate could result in our failure to provide compliant software solutions, which could result in customers not purchasing our software solutions or terminating their contracts with us or the imposition of fines or other liabilities for which we may be responsible. In addition, as a service provider to financial institutions, we may be subject to direct regulation and examination by federal and/or state agencies, and such agencies may attempt to further regulate our activities in the future which could adversely affect our business and results of operations.

Any use of our solutions by our customers in violation of regulatory requirements could damage our reputation and subject us to additional liability.

If our customers or their clients use our solutions in violation of regulatory requirements and applicable laws, we could suffer damage to our reputation and could become subject to claims. We rely on contractual obligations made to us by our customers that their use and their clients’ use of our solutions will comply with applicable laws. However, we do not audit our customers or their clients to confirm compliance. We may become subject to or involved with claims for violations by our customers or their clients of applicable laws in connection with their use of our solutions. Even if claims asserted against us do not result in liability, we may incur costs in investigating and defending against such claims. If we are found liable in connection with our customers’ or their clients’ activities, we could incur liabilities and be required to redesign our solutions or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability.

The financial services industry is heavily regulated and changes in current legislation or new legislation could adversely affect our business.

The financial services industry in the United States, and in particular, the consumer lending and mortgage industries, are heavily regulated. Federal and state governments and agencies could enact legislation or other policies that could negatively impact the business of our customers and our product partners. Any changes to existing laws or regulations or adoption of new laws or regulations that increase restrictions on the consumer lending and mortgage industries may decrease usage and volumes transacted with our solutions or otherwise limit the ability of our customers and our product partners to operate their businesses, resulting in decreased usage of our software solutions.

Changes in current legislation or new legislation may increase our costs by requiring us to update our solutions and services.

Changes to existing laws or regulations or adoption of new laws or regulations relating to the consumer lending and mortgage industries could require us to incur significant costs to update our solutions and services. Our software solutions are designed to assist our customers with compliance with consumer protection laws and institutionally mandated compliance policies and therefore must continually be updated to incorporate changes to such laws and policies. For example, we made the decision to make certain changes to our software solutions to assist our customers with compliance with modifications to the Truth in Lending Act, or TILA. These updates have caused us to incur significant expense, and future updates will likely similarly cause us to incur significant expense.

 

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While our customers are ultimately responsible for compliance with the laws and regulations that apply to the consumer lending and mortgage industries, a failure to design or to appropriately update our software solutions to reflect and comply with changes to existing laws or regulations or with new laws or regulations may contribute to violations by our customers of such laws and regulations. Any such violations could encourage our customers to discontinue using our software solutions and cause us reputational harm, which would negatively impact our financial position and results of operations.

Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws, foreign export controls and trade sanctions, and similar laws, could subject us to penalties and other adverse consequences.

Failure to comply with anti-bribery, anti-corruption, anti-money laundering, and similar laws could subject us to penalties and other adverse consequences. We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and other federal, state, and local laws that address anti-bribery, anti-corruption, and anti-money laundering. If we expand internationally, we may become subject to the anti-corruption, anti-bribery, and anti-money laundering laws of other countries. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.

If we pursue international expansion, our risks under these laws may increase as we, our employees, agents, representatives, business partners, and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners, or third-party intermediaries even if we do not explicitly authorize such activities. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot assure you that none of our employees, agents, representatives, business partners, or third-party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

In some cases, our solutions may be subject to U.S. and foreign export controls, trade sanctions, and import laws and regulations. Governmental regulation of the import or export of our solutions, or our failure to obtain any required import or export authorization for our solutions, when applicable, could harm future international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our solutions may create delays in the introduction of our solutions in international markets or, in some cases, prevent the export of our solutions to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use of our solutions by, or in our decreased ability to export our solutions to, existing or potential customers with international operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely affect our business.

Any allegations or violation of the FCPA or other applicable anti-bribery or anti-corruption laws, anti-money laundering laws, or foreign export controls and trade sanctions could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and

 

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prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. In addition, the U.S. government may seek to hold us liable for successor liability for FCPA violations committed by companies in which we invest or that we acquire. As a general matter, investigations, enforcement actions and sanctions could harm our reputation, business, results of operations, and financial condition.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial net operating losses, or NOLs, during our history. U.S. federal and certain state NOLs generated in taxable years beginning after December 31, 2017 are not subject to expiration. Federal NOLs generally may not be carried back to prior taxable years except that, under the Coronavirus Aid, Relief and Economic Security (CARES) Act, federal NOLs generated in 2018, 2019, and 2020 may be carried back to each of the five taxable years preceding the taxable year in which the loss arises. Additionally, for taxable years beginning after December 31, 2020, the deductibility of federal NOLs is limited to 80% of our taxable income in such taxable year. NOLs generated in tax years before 2018 may still be used to offset future taxable income without regard to the 80% limitation, although they have the potential to expire without being utilized if we do not achieve profitability in the future. However, under the rules of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its NOLs and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. The applicable rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a company, as well as changes in ownership arising from new issuances of stock by the company. The rules of Section 382 are regularly being evaluated to determine any potential limitations. If we experience one or more ownership changes as a result of this offering or future transactions in our stock, then we may be limited in our ability to use our NOL carryforwards to offset our future taxable income, if any. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs by certain jurisdictions, including in order to raise additional revenues to help counter the fiscal impact from the COVID-19 pandemic, possibly with retroactive effect, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. A temporary suspension of the use of certain NOLs has been enacted in California for taxable years beginning on or after January 1, 2020 and before January 1, 2023, and other states may enact suspensions as well. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, which may adversely affect the results of our operations.

If one or more U.S. states or local jurisdictions successfully assert that we should have collected or in the future should collect additional sales or use taxes on our fees, we could be subject to additional liability with respect to past or future sales, and the results of our operations could be adversely affected.

We do not collect state and local sales and use taxes in all jurisdictions in which our customers are located, based on our belief that such taxes are not applicable. Sales and use tax laws and rates vary by jurisdiction and such laws are subject to interpretation. Jurisdictions in which we do not collect sales and use taxes may assert that such taxes are applicable, which could result in the assessment of such taxes, interest, and penalties, and we could be required to collect such taxes in the future. This additional sales and use tax liability could adversely affect the results of our operations. In addition, one or more states, the federal government or other countries may seek to impose additional reporting, record-keeping, or indirect tax collection obligations on businesses like ours that offer subscription services. For example, on June 21, 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement

 

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of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years, which could create additional administrative burdens for us, put us at a competitive disadvantage if such states do not impose similar obligations on our competitors and decrease our future sales, which could adversely impact our business and results of operations. New taxes could also require us to incur substantial costs to capture data and collect and remit taxes. If such obligations were imposed, the additional costs associated with tax collection, remittance and audit requirements could have an adverse effect on our business, financial condition, and results of operations.

Risks Related to Our Reliance on Third Parties

We depend on data centers operated by us as well as third parties and third-party Internet hosting providers, and any disruption in the operation of these facilities or access to the Internet could adversely affect our business.

We currently serve our customers from our own internal data center located in Costa Mesa, California and two third-party data center hosting facilities located in Lone Mountain, Nevada and Atlanta, Georgia. The third-party owners and operators of these current and future facilities do not guarantee that our customers’ access to our software solutions will be uninterrupted, error-free, or secure. We may experience website disruptions, outages and other performance problems at our data center and third-party data centers. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Data center facilities are vulnerable to damage or interruption from human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes, or similar catastrophic events. They also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or terminate our hosting arrangement or other unanticipated problems could result in lengthy interruptions in the delivery of our software solutions, cause system interruptions, prevent our customers’ account holders from accessing their accounts online, reputational harm and loss of critical data, prevent us from supporting our software solutions or cause us to incur additional expense in arranging for new facilities and support.

We also depend on third-party Internet-hosting providers and continuous and uninterrupted access to the Internet through third-party bandwidth providers to operate our business. As we continue to expand the number of our customers and available solutions, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of data centers, Internet service providers or other third-party service providers to meet our capacity requirements could result in interruptions or delays in access to our solutions or impede our ability to grow our business and scale our operations. If our third-party infrastructure service agreements are terminated, or there is a lapse of service, interruption of Internet service provider connectivity, or damage to data centers. If we lose the services of one or more of our Internet-hosting or bandwidth providers for any reason or if their services are disrupted, for example due to viruses or denial of service or other attacks on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes or similar catastrophic events, we could experience disruption in our ability to offer our software solutions and adverse perception of our software solutions’ reliability, or we could be required to retain the services of replacement providers, which could cause interruptions in access to our solutions as well as delays and additional expense in arranging new facilities and services and could also increase our operating costs and harm our business and reputation. Additionally, any need to change Internet-hosting service providers would require a significant amount of time and effort by our information technology department. We are working to transition all of our software solutions to the public cloud by the end of 2022 and this migration could introduce risks associated with data and services migration that could affect our business continuity, result in loss, corruption, or compromise of data, and impact the provision of our software solutions. If this planned

 

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transition is delayed or impacts the reliability and availability of our software solutions, our customer relationships could be negatively impacted, which could result in a materially and adversely affect our business and results of operations.

Defects, errors, or other performance problems in our software solutions could harm our reputation, result in significant costs to us, impair our ability to sell our software solutions and subject us to substantial liability.

Our software solutions are complex and may contain defects, viruses or errors when implemented or when new functionality is released. In addition, we rely on technologies and software supplied by third parties that may also contain undetected errors, viruses, or defects. Despite extensive testing, from time to time we have discovered and may in the future discover defects or errors in our software solutions. Any performance problems or defects in our software solutions may materially and adversely affect our business and results of operations. Defects, errors, or other performance problems or disruptions in service to provide bug fixes or upgrades, whether in connection with day-to-day operations or otherwise, could be costly for us, damage our customers’ businesses, result in loss of credibility with current or potential customers or partners and harm our reputation, any of which could result in a material adverse effect on our business, operating results and financial condition. In addition, if we have any such errors, defects or other performance problems, our customers could seek to terminate their contracts, elect not to renew their subscriptions, delay or withhold payment, or make claims against us.

We may experience temporary system interruptions, either to our solutions as a whole, individual software solutions or groups thereof, or to some or all of our software hosting locations, for a variety of reasons, including network failures, power failures, software errors or an overwhelming number of users trying to access our software solutions during periods of strong demand. In addition to our primary data center located in our leased facility in Costa Mesa, California which we control and maintain, two of our additional data centers, located in Lone Star, Nevada and Atlanta, Georgia, are hosted by a third-party service provider over which we have little control. We depend on this third-party service provider to provide continuous and uninterrupted access to our solutions and our hosted software solutions. If for any reason our relationship with this third-party were to end, it would require a significant amount of time to transition the hosting of our data centers to a new third-party service provider.

Because we are dependent on third parties for the implementation and maintenance of certain aspects of our systems and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, if at all. As we rely heavily on our servers, computer and communications systems and the Internet to conduct our business, any of these actions could result in liability, lost business, increased insurance costs, difficulty in collecting accounts receivable, costly litigation or adverse publicity. Errors, defects, or other problems could also result in reduced sales or a loss of, or delay in, the market acceptance of our software solutions.

We have entered, and may in the future enter into, partnership agreements with third parties for reseller services, which may adversely affect our ability to generate revenues.

We have entered into and may seek to enter into additional collaborations or partnerships with third parties for reseller services. Should we seek to collaborate with a third party with respect to a prospective reseller program, we may not be able to locate a suitable partner or to enter into an agreement on commercially reasonable terms or at all. Even if we succeed in securing partners for reseller services, such as the arrangement we have entered into with Jack Henry & Associates, Inc., we have limited control over the time and resources that our partners may dedicate to such services. These partnerships pose a number of risks, including the following:

 

   

partners may not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as budget limitations, lack of human resources or a change in strategic focus; or

 

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partners may decide to pursue a competitive product developed outside of the collaboration arrangement.

As a result of the foregoing risks and others, partnership agreements may not lead to successful reseller programs. We also face competition in seeking out partners. If we are unable to secure new partnerships that achieve the partner’s objectives and meet our expectations, we may be unable to generate meaningful revenues.

We have shifted a significant portion of our product development operations to India, which poses risks.

Since August 2018, unrelated third parties have provided us with technology development services, as well as certain customer implementation and support services through individuals based in India. We have increased the proportion of our product development work being performed by contractors in India in order to take advantage of cost efficiencies associated with India’s lower wage scale. However, we may not achieve the cost savings and other benefits we anticipate from these programs and we may not be able to find sufficient numbers of developers with the necessary skill sets in India to meet our needs. While our experience to date with our India-based contractors has been positive, there is no assurance that this will continue. Specifically, there are a number of risks associated with this activity, including but not limited to the following:

 

   

communications and information flow may be less efficient and accurate as a consequence of the time, distance and language differences between our primary development organization and the foreign-based activities, resulting in delays in development or errors in the software developed;

 

   

in addition to the risk of misappropriation of intellectual property from departing personnel, there is a general risk of the potential for misappropriation of our intellectual property that might not be readily discoverable;

 

   

the ability to obtain fulsome rights to intellectual property arising from the work performed by India-based individuals may be more difficult than it is with respect to intellectual property arising from work performed for us by our U.S.-based employees;

 

   

the quality of the development efforts undertaken offshore may not meet our requirements, including due to experiential differences, resulting in potential product errors and/or delays;

 

   

currency exchange rates could fluctuate and adversely impact the cost advantages intended from maintaining these relationships; and

 

   

as would be the case with any of our third-party developers, if those based in India were to leave their employment or if the third-party development services agreement with us were terminated, we would lose some short-term development capacity, and while we believe we would still be able to continue maintaining and improving all of our service offerings, we would need to expend resources and management time to on-board additional development resources.

In addition, as a result of the foregoing arrangements, we have a heightened risk exposure to changes in the economic, security, and political conditions of India. Economic and political instability, military actions, and other unforeseen occurrences in India could impair our ability to develop and introduce new software applications and functionality in a timely manner, which could put our products at a competitive disadvantage whereby we lose existing customers and/or fail to attract new customers.

 

 

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Risks Related to Intellectual Property

If we are unable to protect our intellectual property, our business could be adversely affected.

Our success depends upon our ability to protect our intellectual property, which may require us to incur significant costs. We have developed much of our intellectual property internally, and we rely on a combination of confidentiality obligations and other restrictions in contracts, copyrights, trademarks, service marks, and trade secret laws to establish and protect our intellectual property and other proprietary rights. In particular, we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have business relationships in which they will have access to our material confidential information. No assurance can be given that these agreements or other steps we take to protect our intellectual property will be effective in controlling access to and distribution of our software solutions and our confidential and proprietary information and these agreements or other steps may not afford complete protection and may not adequately permit us to gain or keep any competitive advantage. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized uses of our intellectual property. Any of our trademarks or other intellectual property rights may lapse, be abandoned, be challenged or circumvented by others, or invalidated through administrative process or litigation. We also may allow certain of our registered intellectual property rights, or our pending applications or registrations for intellectual property rights, to lapse or to become abandoned if we determine that obtaining or maintaining the applicable registered intellectual property rights is not worthwhile.

Despite our precautions, it may be possible for third parties to copy, reverse engineer, or otherwise obtain and use our solutions, technology, systems, methods, processes, or information that we regard as proprietary to create software solutions and services that compete with ours. Third parties may also independently develop technologies that are substantially equivalent to our software solutions, or adopt trade names or domain names similar to ours, thereby impeding our ability to promote our solutions and possibly leading to customer confusion. Some contract provisions protecting against unauthorized use, copying, transfer and disclosure of our software solutions may be unenforceable under the laws of certain jurisdictions. We cannot guarantee that our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties. Further, no assurance can be given that our agreements will be effective in controlling access to and distribution of our solutions and proprietary information, and they do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our solutions.

In some cases, litigation may be necessary to enforce our intellectual property rights or to protect our trade secrets. Litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights and exposing us to significant damages or injunctions. Our inability to protect our intellectual property against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay sales or the implementation of our software solutions, impair the functionality of our software solutions, delay introductions of new software solutions, result in our substituting less-advanced or more-costly technologies into our software solutions or harm our reputation. In addition, we may be required to license additional intellectual property from third parties to develop and market new software solutions, and we cannot assure you that we could license that intellectual property on commercially reasonable terms or at all.

We use open source software in our solutions, which could subject us to litigation or other actions, or otherwise negatively affect our ability to sell our solutions.

Our solutions incorporate software modules licensed to us by third-party authors under “open source” licenses, and we expect to continue to incorporate open source software in our solutions and platform in the future. Use and distribution of open source software may entail greater risks than use of third-party commercial

 

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software, as open source licensors generally do not provide support, warranties, indemnification, or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability of such software may make it easier for others to compromise our solutions. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use, or grant other licenses to our intellectual property.

Although we monitor our use of open source software to avoid subjecting our solutions to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our solutions. Moreover, we cannot assure you that our processes for controlling our use of open source software in our solutions will be effective. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate it into their products. As a result, we could become subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our business, operating results, and financial condition, or require us to devote additional research and development resources to change our solutions. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties to continue providing our offerings on terms that are not economically feasible, to re-engineer our solutions (which could involve substantial time and resources), to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, financial condition and results of operations. A release of our proprietary code could also allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages.

Lawsuits by third parties against us or our customers for alleged infringement of the third parties’ proprietary rights or for other intellectual property-related claims relating to our solutions or business could result in significant expenses and harm our operating results.

Our industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in our industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Furthermore, our customer agreements typically require us to indemnify our customers against liabilities incurred in connection with claims alleging our software solutions infringe or otherwise violate the intellectual property rights of a third party. We are currently and, from time to time, have been involved in disputes related to patent and other intellectual property rights of third parties. To date, none of these disputes have resulted in material liabilities. We expect these types of disputes to continue to arise in the future and we cannot be certain that we will not incur material liabilities related to any such disputes. Our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them. There can be no assurances that any existing limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have an adverse effect on our business, operating results, and financial condition.

Furthermore, our technologies may not be able to withstand any third-party claims or rights against their use. As a result, our success depends upon our not infringing upon or otherwise violating the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. We do not own any patents, which may prevent us from deterring patent infringement claims, and our competitors and others may now and in the future have significant patent portfolios. From time to time, we seek to obtain patents to protect our proprietary rights, but we cannot be certain that we will be successful in obtaining any such patents and, even if such patents are obtained they may be

 

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challenged or provide inadequate protection of our proprietary rights. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our solutions or cease business activities related to such intellectual property. From time to time, we have received and may continue to receive threatening letters or notices or in the future may be the subject of claims that our software solutions and underlying technology infringe or otherwise violate the intellectual property rights of others, and we may be found to be infringing upon or otherwise violating such rights. The risk of patent litigation has been amplified by the increase in the number of patent holding companies or other adverse patent owners that have no relevant product revenues, and therefore, any patents we may obtain in the future may provide little or no deterrence as we would not be able to assert them against such entities or individuals. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us or our customers whom we indemnify, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our software solutions or require that we comply with other unfavorable terms. We also face from time to time trade name or trademark or service mark infringement claims brought by owners of other registered or unregistered trademarks or service marks, including trademarks or service marks that may incorporate variations of our brand names. Even if the claims do not result in litigation or are resolved in our favor, these claims and the time and resources necessary to resolve them could divert the resources of our management and harm our business and operating results. Any claims related to our intellectual property or customer confusion related to our solutions could damage our reputation and adversely affect our growth prospects.

If our goodwill and other intangibles become impaired, we may be required to record a significant charge to earnings.

We have a significant amount of goodwill and other intangibles. Our goodwill and other intangible asset balances as of March 31, 2021 were approximately $543 million and $317 million, respectively. We test goodwill at least annually, on October 1, or more frequently if circumstances indicate that goodwill may not be recoverable. Such assets are considered to be impaired when the carrying value of an intangible asset exceeds its estimated fair value. No impairment, except those disclosed related to our trademarks, has been recorded in the consolidated financial statements included elsewhere in this prospectus. In addition, an impairment of a significant portion of our goodwill could materially adversely affect our financial condition and results of operations.

Risks Related to Managing Our Business and Operations

Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations, including the levels of our revenues, gross margin, profitability, and cash flow may vary significantly in the future and, accordingly, period-to-period comparisons of our results of operations may not be meaningful. Thus, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and may not fully or accurately reflect the underlying performance of our business. For example, while subscriptions with our customers often include multi-year terms that typically range from three to five years, a majority of our revenues from these subscriptions comes from usage or volume-based fees, such as application fees and per inquiry fees, as opposed to annual or monthly base fees. As such, if our customers terminate their agreements with us prior to their scheduled term, we may only recover all or a portion of our contractual base fees, and not any usage or volume-based fees. Fluctuation in quarterly results may negatively impact the value of our common stock. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:

 

   

our ability to retain current customers or attract new customers;

 

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the overall usage and volume of transactions handled or processed using our software solutions, which may vary based on external factors such as macroeconomic conditions including the impact of the COVID-19 pandemic, and seasonality;

 

   

the activation, delay in activation or cancellation by customers;

 

   

the timing of recognition of professional services revenues;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;

 

   

acquisitions of our customers, to the extent the acquirer elects not to continue using our solutions or reduces subscriptions to it;

 

   

customer renewal, expansion, and retention rates;

 

   

increases or decreases in usage or pricing changes upon renewals of customer contracts;

 

   

network outages or security breaches;

 

   

general economic, industry and market conditions (particularly those affecting financial institutions);

 

   

changes in our pricing policies or those of our competitors;

 

   

seasonal variations in sales of our software solutions, which have historically been highest in the third quarter of our fiscal year;

 

   

the timing and success of introductions of new solutions or features and functionality by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic partners;

 

   

unexpected expenses such as those related to litigation and other disputes; and

 

   

the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.

Uncertain or weakened economic conditions, including as a result of the COVID-19 pandemic, may adversely affect our industry, business, and results of operations.

Our overall performance depends on economic conditions, which may be challenging at various times in the future. Financial developments seemingly unrelated to us or our industry may adversely affect us. Domestic and international economies have from time-to-time been impacted by falling demand for a variety of goods and services, tariffs and other trade issues, threatened sovereign defaults and ratings downgrades, restricted credit, threats to major multinational companies, poor liquidity, reduced corporate profitability, volatility in credit and equity markets, bankruptcies, and overall uncertainty. For example, COVID-19 has created and may continue to create significant uncertainty in global financial markets and the long-term economic impact of COVID-19 is highly uncertain. We cannot predict the timing, strength or duration of the current or any future potential economic slowdown in the United States or globally. These conditions affect the rate of technology spending generally and could adversely affect our customers’ ability or willingness to purchase our software solutions, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, any of which could adversely affect our results of operations.

 

 

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Efforts to contain the spread of COVID-19 in the United States (including in California where our corporate headquarters are located) have included quarantines, shelter-in-place orders, and various other government restrictions in order to control the spread of this virus. We have been carefully monitoring the COVID-19 pandemic as it continues to progress and its potential impact on our business. We have suspended travel for employees, temporarily closed our offices, and, since mid-March 2020, have requested that our employees work remotely. While we have been operating effectively under our remote work model, which we anticipate continuing for the foreseeable future to ensure the safety and well-being of our employees, we cannot be certain that a prolonged remote work model will continue to be effective or will not introduce new operational difficulties that could result in harm to our business. For example, with our shift to remote work we have had to assess and enhance our IT security measures to identify any vulnerabilities and enhance protections against unauthorized access to our network and systems. While we have not yet experienced any network breaches or intrusions since moving to a remote work model, we cannot be certain that protective measures we have taken will be sufficient, and any such related intrusion or other security breach or intrusion compromise that may occur could materially and adversely impact or business, results of operations or reputation.

The COVID-19 pandemic creates significant risks and uncertainties for our customers, their clients, our partners and suppliers, our employees, and our business generally. We are being cautious as a result of the uncertainties and risks posed by the COVID-19 pandemic and in response to these uncertainties for the short-term we are actively monitoring the impacts of COVID-19 on our financial results and adjusting our hiring plans and investment spending accordingly. We are also considering how our physical facilities requirements might change when we eventually return to increased onsite operations, including the costs associated with ensuring a safe work environment and the likely increased prevalence of working from home for many employees. The timing and amount of these investments will vary based on the rate at which we expect to add new customers or sell additional solutions to existing customers, our customer retention rates, the implementation and support needs of our customers, our software development plans, our technology and physical infrastructure requirements, and changes thereto resulting from the COVID-19 pandemic, and other needs of our organization (including needs resulting from the COVID-19 pandemic). Many of these investments will occur in advance of our realizing any potential benefit which may make it difficult to determine if we are effectively allocating our resources.

A breach or compromise of our security measures or those we rely on could result in unauthorized access to or other compromise of customers’ data or customers’ clients’ data, which may materially and adversely impact our reputation, business, and results of operations.

Certain elements of our business and software solutions, particularly our origination and analytics solutions, involves the processing and storage of personally identifiable information, or PII, such as banking information and PII of our customers’ clients. We may also have access to PII during various stages of the implementation process of our solutions or during the course of providing customer support. Furthermore, as we develop additional functionality, we may gain greater access to PII and process additional PII. We maintain policies, procedures and technological safeguards designed to protect the confidentiality, integrity and availability of this information and our information technology systems. However, we cannot entirely eliminate the risk of improper or unauthorized access to, or disclosure, alteration or loss of PII or other data that we process or maintain, or other security events that impact the integrity or availability of PII or our systems and operations, or the related costs we may incur to mitigate the consequences from such events. Further, our solutions are a combination of flexible and complex software and there is a risk that configurations of, or defects in, one or more of the solutions or errors in implementation could create vulnerabilities to, or result in, security breaches. There may be unlawful or unauthorized attempts to disrupt or gain access to our information technology systems or the PII or other data of our customers or their clients that may disrupt our or our customers’ operations or result in improper or unauthorized access to, or disclosure, alteration or loss of, this PII or other data. We may face delays in identifying or responding to security compromises or breaches. In addition, because we leverage third-party providers, including cloud, software, data center and other critical technology vendors to deliver our software solutions to our customers and their clients, we rely heavily on the data security procedures, measures and

 

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policies adopted by these third-party providers. A vulnerability in a third-party provider’s software or systems, a failure of our third-party providers’ safeguards, policies, measures, or procedures, or a breach of a third-party provider’s software or systems could result in the compromise of the confidentiality, integrity, or availability of our systems or of data housed in our platform or that is maintained or processed by such third-party provider. When engaging third-party providers, we assess their policies and procedures relating to cybersecurity and privacy, however, we have no formal policy regarding subsequent audits of these providers to confirm their ongoing compliance efforts and our failure to detect issues with these third-party providers could result in vulnerabilities that would materially and adversely impact our business, customers, and results of operations.

Cyberattacks and other malicious internet-based activity continue to increase and evolve, and cloud-based providers of products and services have been and are expected to continue to be targeted. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), phishing attempts, theft or misuse and other intentional or negligent acts of our employees and contractors, denial-of-service attacks, sophisticated criminal networks as well as nation-state and nation-state supported actors now engage in intrusions and attacks, including advanced persistent threat intrusions. Current or future criminal capabilities, discovery of existing or new vulnerabilities, and attempts to exploit those vulnerabilities or other developments, may compromise or breach our systems or software solutions. In the event our or our third-party providers’ protection efforts are unsuccessful and our systems or software solutions are breached or compromised, we could suffer substantial harm. A security breach or compromise could result in operational disruptions, loss, compromise, unauthorized use of, or access to, alteration or corruption of customer data or customers’ client data or data we rely on to provide our software solutions, including our analytics initiatives and offerings that impair our ability to provide our software solutions and meet our customers’ requirements resulting in decreased revenues and otherwise materially negatively impacting our financial results. Also, in the event that any of these events occurs or is perceived to have occurred, our reputation could suffer irreparable harm, causing our current and prospective customers to decline to use our software solutions in the future. Further, we could be forced to expend significant financial and operational resources in response to any actual or perceived security breach or compromise, including repairing system damage, increasing security protection costs by deploying additional personnel and protection technologies, and defending against and resolving legal and regulatory claims and proceedings, all of which could be costly and divert resources and the attention of our management and key personnel away from our business operations. While maintaining and enhancing an incident response and disaster recovery program in the event of any of the foregoing attacks or system unavailability are internal priorities, we cannot be certain that our incident response and disaster recovery efforts will be adequate if they are needed and any gaps in our ability to respond to incidents and move our customers to back-up systems would result in additional adverse impacts on our business, results of operations and reputation. We anticipate expending increasing expenses and other resources in an effort to identify, prevent, and respond to actual or potential security breaches.

Federal and state regulations may require us or our customers to notify individuals or other persons or entities, including regulatory authorities of data security breaches or compromises involving certain types of personal data or information technology systems, and we otherwise may find it necessary or appropriate to notify customers, individuals, or other parties of certain data security incidents. Security breaches or compromises experienced by others in our industry, our customers or us may lead to public disclosures and widespread negative publicity. Any security breach or compromise in our industry, whether actual or perceived, could erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew or expand their use of our software solutions or subject us to third-party claims and lawsuits, indemnification or other claims from customers and other third parties, regulatory investigations or proceedings, fines or other actions or liabilities, which could materially and adversely affect our business and results of operations. In addition, some of our customers contractually require notification of data security breaches or compromises and include representations and warranties in their contracts with us that our software solutions comply with certain legal and technical standards related to data security and privacy and meets certain service levels. In certain of our contracts, a data security breach or compromise or operational disruption impacting us or one of our vendors, or system unavailability or damage due to other circumstances, may constitute a material breach and give rise to a customer’s right to terminate their

 

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contract with us or may cause us to be liable for certain monetary penalties, including as a result of a failure to meet service level agreements within customer agreements. While we have not, as of the date of this prospectus, incurred any material monetary penalties as a result of these provisions, we cannot be certain that we will not in the future be liable for such payments, which could materially and adversely impact our business, results of operations and reputation with our customers. In these circumstances, it may be difficult or impossible to cure such a breach or compromise in order to prevent customers from potentially terminating their contracts with us. Furthermore, although our customer contracts typically include limitations on our potential liability, there can be no assurance that such limitations of liability would be adequate. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will be available on acceptable terms or will be available in sufficient amounts to cover one or more claims, or that our insurers will not deny or attempt to deny coverage as to any future claim. The successful assertion of one or more claims against us, the inadequacy or denial of coverage under our insurance policies, litigation to pursue claims under our policies or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or coinsurance requirements, could materially and adversely affect our business and results of operations.

Any future litigation against us could damage our reputation and be costly and time-consuming to defend.

We have in the past and may become in the future subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes or employment claims made by current or former employees. In other instances, our customers, become involved in litigation where we are required to provide information pursuant to a court order. While we may never become a party in any such litigation, such information requests can be burdensome, time-consuming, and distracting from our day-to-day operations. Litigation might result in reputational damage and substantial costs and may divert management’s attention and resources, which might adversely impact our business, overall financial condition, and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us. Moreover, any negative impact to our reputation will not be adequately covered by any insurance recovery. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our results of operations and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the value of our common stock. From time to time, we also may initiate litigation to enforce our rights, including with respect to payments that we are owed. While we currently are not aware of any material pending or threatened litigation against us, we can make no assurances the same will continue to be true in the future.

If we fail to develop, maintain, and enhance our brands, our ability to expand our business, operating results, and financial condition could be adversely affected.

We believe that maintaining and enhancing the brands associated with our solutions is important to support the marketing and sale of our existing and future solutions to new customers and to increase adoption of our solutions by existing customers. Successfully maintaining and enhancing our brands will depend largely on the effectiveness of our marketing and demand generation efforts, our ability to provide reliable solutions that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and solutions, and our ability to successfully differentiate our solutions from competitive products and services. Our promotion activities may not generate brand awareness or yield increased revenues, and even if they do, any increased revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brands, our business, operating results, and financial condition could be adversely affected.

 

 

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The market data and forecasts included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you that our business will grow at similar rates, or at all.

The third-party market data and forecasts included in this prospectus, as well as our internal estimates and research, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, although we have no reason to believe such information is not correct and we are in any case responsible for the contents of this prospectus. If the forecasts of market growth, anticipated spending or predictions regarding market size prove to be inaccurate, our business and growth prospects could be adversely affected. Even if all or some of the forecasted growth occurs, our business may not grow at a similar rate, or at all. Our future growth is subject to many factors, including our ability to successfully implement our business strategy, which itself is subject to many risks and uncertainties. The reports described in this prospectus speak as of their respective publication dates and the opinions expressed in such reports are subject to change. Accordingly, investors in our common stock are urged not to put undue reliance on such forecasts and market data.

Mortgage lending volume is expected to be lower in 2021 and 2022 than it was in 2020 due to various economic factors, including the anticipated increase in mortgage interest rates, which could adversely affect our business.

Factors that adversely impact mortgage lending volumes include reduced consumer and investor demand for mortgages, more stringent underwriting guidelines, increased illiquidity in the secondary mortgage market, high levels of unemployment, high levels of consumer debt, lower consumer confidence, changes in tax, and other regulatory policies, including the recent expiration of the home buyer’s tax credit and other macroeconomic factors.

In addition, mortgage interest rates are currently near historic lows and many economists predict that mortgage interest rates will rise in 2021. Mortgage interest rates are influenced by a number of factors, particularly monetary policy. The Federal Reserve Bank may raise the Federal funds rate and has ceased purchasing Fannie Mae and Freddie Mac mortgage-backed securities, each of which would likely cause mortgage interest rates to rise. Increases in mortgage interest rates would reduce the volume of new mortgages originated, in particular the volume of mortgages refinanced.

The expected lower levels in residential mortgage loan volume in 2021 and 2022 as compared to 2020 levels will require us to increase our revenues per loan effected through use of our solutions in order to maintain our financial performance. Any additional decrease in residential mortgage volumes would exacerbate our need to increase revenues per loan effected through use of our solutions. We cannot assure you that we will be successful in our efforts to increase our revenues per loan effected through use of our solutions, which could materially adversely affect our business.

Specifically for context, annual revenues from the mortgage loan market generated 11% and 12% of our Lending Software Solutions revenues in 2019 and 2020, respectively, and annual revenues from the mortgage loan market generated 91% and 93% of our Data Verification Software Solutions revenues in 2019 and 2020, respectively. In addition, in the first quarter of 2021, revenues from the mortgage loan market generated 11% and 73% of our quarterly Lending Software Solutions revenues and Data Verification Software Solutions revenues, respectively.

In addition, increases in interest rates generally may also negatively impact consumer demand for loans other than mortgages. If demand for non-mortgage loans also decreases as a result of increased interest rates, our business and operating results could be materially adversely affected.

 

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Certain of our key operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

We track certain key operating metrics using internal tools, which have certain limitations. In addition, we rely on data received from third parties, including industry forecast reports, to track certain performance indicators. We have only a limited ability to verify data from both of these sources.

Our methodologies for tracking metrics may also change over time, which could result in changes to the metrics we report. If we undercount or overcount performance due to the internal tools we use or issues with the data received from third parties, or if our internal tools contain errors, the data we report may not be accurate or comparable with prior periods. In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer-term strategies. For example, we calculate our annual recurring revenue, or ARR, as the total subscription fee revenues calculated in the latest twelve-month measurement period for those revenue-generating customers and partners in place throughout the entire twelve-month measurement period plus the subscription fee revenues calculated on an annualized basis from new customer or partner activations in the measurement period. While we believe that annualizing the subscription fee revenues calculated from these new customer and partner activations provides a reasonable estimate of the total subscription fee revenues to be recognized from these customers and partners once they are on our platform for a full twelve-month period, we cannot be certain that these customers will generate the level of subscription fee revenues suggested by this annualization due to the volume-based aspect of our pricing model and, as a result, these figures cannot be relied upon as forecasts of future anticipated subscription fee revenues. For additional information regarding our ARR calculation, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Operating Metrics—Annual Recurring Revenue.”

If our performance metrics are not accurate representations of our financial or operational performance, if we discover material inaccuracies in our metrics, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business, operating results and financial condition could be adversely affected.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as terrorism.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war and similar events. For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices and one of the facilities we lease to house our computer and telecommunications equipment are located in Southern California, a region known for seismic activity. In addition, acts of terrorism, which may be targeted at metropolitan areas which have higher population density than rural areas, could cause disruptions in our or our customers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting Southern California, and our business interruption insurance may be insufficient to compensate us for losses that may occur.

If we fail to meet our service level commitments, we could be obligated to provide credits or refunds or face contract terminations, which could adversely affect our business, operating results and financial condition.

Certain of our agreements with our customers contain service level commitments. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our solutions, we may be contractually obligated to provide these parties with service credits or refunds. In addition, we could face contract terminations, in which case we would be subject to a loss of future revenues. Our revenues could be significantly affected if we suffer unexcused downtime under our agreements with our customers and partners. Further, any extended service outages could adversely affect our reputation, revenues and operating results.

 

 

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If we fail to respond to evolving technological requirements or introduce adequate enhancements and new features, our software solutions could become obsolete or less competitive.

The market for our software solutions is characterized by rapid technological advancements, changes in customer requirements and technologies, frequent new solution introductions and enhancements and changing regulatory requirements. The life cycles of our software solutions are difficult to estimate. Rapid technological changes and the introduction of new products and enhancements by new or existing competitors or large financial institutions could undermine our current market position. Other means of digital or virtual consumer lending and banking may be developed or adopted in the future, and our software solutions may not be compatible with these new technologies. In addition, the technological needs of, and services provided by, the banks, credit unions, mortgage lenders, specialty lending providers and CRAs that we endeavor to serve may change if they or their competitors offer new services to account holders. Maintaining adequate research and development resources to meet the demands of the market is essential. The process of developing new technologies and software solutions is complex and expensive. The introduction of new products by our competitors, the market acceptance of competitive products based on new or alternative technologies or the emergence of new technologies or products in the broader financial services industry could render our solutions obsolete or less effective.

The success of any enhanced or new software solution depends on several factors, including timely completion, adequate testing and market release and acceptance of the solution. Any new software solutions that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain defects or may not achieve the broad market acceptance necessary to generate significant revenues. If we are unable to anticipate customer requirements or work with our customers successfully on implementing new software solutions or features in a timely manner or enhance our existing software solutions to meet our customers’ requirements, our business and operating results may be adversely affected.

We may acquire or invest in companies, or pursue business partnerships, which may divert our management’s attention or result in dilution to our stockholders, and we may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions, investments or partnerships.

From time to time, we consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets. For example, in November 2020, we acquired Teledata Communications, Inc., a SaaS loan origination product. We also may enter into relationships with other businesses to expand our products, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to approvals that are beyond our control. In addition, we have limited experience in acquiring other businesses. If an acquired business fails to meet our expectations, our operating results, business and financial position may suffer. We may not be able to find and identify desirable acquisition targets, we may incorrectly estimate the value of an acquisition target, and we may not be successful in entering into an agreement with any particular target. If we are successful in acquiring additional businesses, we may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

   

our inability to integrate or benefit from developed technologies or services;

 

   

unanticipated costs or liabilities associated with the acquisition;

 

   

incurrence of acquisition-related costs;

 

   

difficulty integrating the operational and compliance policies and practices, technology, accounting systems, operations and control environments of the acquired business and integrating the acquired business or its employees into our culture;

 

 

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difficulties and additional expenses associated with supporting legacy products and infrastructure of the acquired business;

 

   

difficulty converting the customers of the acquired business to our software solutions and contract terms, including disparities in subscription terms;

 

   

additional costs for the support or professional services model of the acquired company;

 

   

diversion of management’s attention and other resources;

 

   

adverse effects to our existing business relationships with business partners and customers;

 

   

the issuance of additional equity securities that could dilute the ownership interests of our stockholders;

 

   

incurrence of debt on terms unfavorable to us or that we are unable to repay;

 

   

incurrence of substantial liabilities;

 

   

difficulties retaining key employees of the acquired business; and

 

   

adverse tax consequences, substantial depreciation or deferred compensation charges.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

We may not be able to successfully integrate the operations of businesses that we acquire or realize the anticipated benefits of the acquisitions, which could adversely affect our financial condition, results of operations and business prospects.

There can be no assurance that we will be able to successfully integrate our recent acquisitions or develop or commercialize products based on recently developed technologies, or that we will be able to successfully integrate any other companies, products or technologies that we acquire and may not realize all or any of the expected benefits of any acquisitions as and when planned.

The difficulties and risks associated with the integration of any other businesses that we may acquire include:

 

   

possible inconsistencies in the standards, controls, procedures, policies and compensation structures;

 

   

the increased scope and complexity of the acquired company’s operations;

 

   

the potential loss of key employees and the costs associated to retain key employees;

 

   

risks and limitations on our ability to consolidate corporate and administrative infrastructures of the two companies; and

 

   

the possibility of unanticipated delays, costs or inefficiencies associated with the integration of our operations with the operations of any other companies that we may acquire.

 

 

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As a result of these difficulties and risks, we may not accomplish the integration of the business of any companies we may acquire smoothly, successfully or within our budgetary expectations and anticipated timetable. Accordingly, we may fail to realize some or all of the anticipated benefits of the acquisition, such as increase in our scale, diversification, cash flows and operational efficiency and meaningful accretion to our diluted earnings per share.

If we fail to effectively expand our sales and marketing capabilities and teams, including through partner relationships, we may not be able to increase our customer base and achieve broader market acceptance of our software solutions.

Increasing our customer base and achieving broader market acceptance of our software solutions will depend on our ability to expand our sales and marketing organizations and their abilities to obtain new customers and sell additional solutions and services to existing customers. We believe there is significant competition for direct sales professionals with the skills and knowledge that we require, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future. Our ability to achieve significant future revenue growth will depend on our success in recruiting, training and retaining a sufficient number of direct sales professionals. New hires require significant training and time before they become fully productive and may not become as productive as quickly as we anticipate. As a result, the cost of hiring and carrying new representatives cannot be offset by the revenues they produce for a significant period of time. Our growth prospects will be harmed if our efforts to expand, train and retain our direct sales team do not generate a corresponding significant increase in revenues. Additionally, if we fail to sufficiently invest in our marketing programs or they are unsuccessful in creating market awareness of our company and software solutions, our business may be harmed, and our sales opportunities may be limited.

In addition to our direct sales team, we also extend our sales distribution through formal and informal relationships with referral and reseller partners. While we are not substantially dependent upon referrals from any partner, our ability to achieve significant revenue growth in the future will depend upon continued referrals from our partners and growth of the network of our referral partners. These partners are under no contractual obligation to continue to refer business to us, nor do these partners have exclusive relationships with us and may choose to instead refer potential customers to our competitors. We cannot be certain that these partners will prioritize or provide adequate resources for promoting our software solutions or that we will be successful in maintaining, expanding or developing our relationships with referral partners. Our competitors may be effective in providing incentives to third parties, including our partners, to favor their software products or prevent or reduce subscriptions to our software solutions either by disrupting our relationship with existing customers or limiting our ability to win new customers. Establishing and retaining qualified partners and training them with respect to our software solutions requires significant time and resources. If we are unable to devote sufficient time and resources to establish and train these partners, or if we are unable to maintain successful relationships with them, we may lose sales opportunities and our revenues could suffer.

If we are unable to effectively integrate our software solutions with other systems, products or other technologies used by our customers and prospective customers, or if there are performance issues with such third-party systems, products or other technologies, our software solutions will not operate effectively and our operations will be adversely affected.

The functionality of our software solutions depends on our ability to integrate with other third-party systems, products and other technologies used by our customers. Certain providers of these third-party systems, products or other technologies also offer products that are competitive with our software solutions and may have an advantage over us with customers using their software by having better ability to integrate with their software and by being able to bundle their competitive products with other applications used by our customers and prospective customers at favorable pricing. In addition, some of our competitors may be able to disrupt the operations or compatibility of our solutions with their products or services, or exert strong business influence on our ability to, and terms on which we, provide our solutions. For example, core banking system companies

 

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provide critical back-end services to financial institutions. If these core banking system companies seek to compete with us in the markets we target or make it more difficult for us to integrate our solutions with their offerings, our business and results of operations could be materially and adversely affected. We do not have formal arrangements with many of these third-party providers regarding our access to their application programming interfaces, or APIs, to enable these customer integrations.

Our business may be harmed if any of our third-party providers:

 

   

change the features or functionality of their applications and platforms in a manner adverse to us;

 

   

discontinue or limit our software solutions’ access to their systems or other technologies;

 

   

terminate or do not allow us to renew or replace our existing contractual relationships on the same or better terms;

 

   

modify their terms of service or other legal terms or policies, including fees charged to, or other restrictions on, us or our customers;

 

   

establish exclusive or more favorable relationships with one or more of our competitors, or acquire one or more of our competitors and offer competing services; or

 

   

otherwise have or develop their own competitive offerings.

Third-party services and products are constantly evolving, and we may not be able to modify our solutions to assure compatibility with that of other third parties as they continue to develop or emerge in the future or we may not be able to make such modifications in a timely and cost-effective manner. Such changes could limit or prevent us from integrating our software solutions with these third-party systems, which could impair the functionality of our software solutions, prohibit the use of our software solutions or limit our ability to sell our software solutions to customers, each of which could harm our business. If we are not permitted or able to integrate with such third-party technologies as a result of changes to or restricted access to the technologies by such third parties during the terms of existing agreements with customers using such third-party software, we may not be able to meet our contractual obligations to customers, which may result in harm to our business. Should any of our competitors modify their products or standards in a manner that degrades the functionality of our solutions or gives preferential treatment to our competitors or competitive products, whether to enhance their competitive position or for any other reason, the interoperability of our products with these products could decrease and our business, results of operations, and financial condition would be harmed. In addition, if any third-party technology providers experience an outage, our software solutions integrated with such technology will not function properly or at all, and our customers may be dissatisfied with our software solutions. If the technology of such third-party providers have performance or other problems, such issues may reflect poorly on us and the adoption and renewal of our software solutions and our business may be harmed. Although our customers may be able to switch to alternative technologies if a provider’s services were unreliable or if a provider were to limit such customer’s access and utilization of its data or the provider’s functionality, our business could nevertheless be harmed due to the risk that our customers could reduce their use of our software solutions.

Our usage and volume-based pricing can cause revenue fluctuation and may adversely affect our business and operating results.

Our customer relationships are generally conducted in accordance with the terms of multi-year contracts that, among other things, may provide for minimum purchases and specified levels of pricing based on the volume of loans, applications or searches conducted or processed during the applicable billing period. These contractual features are key determinants of profitability. Certain of our contracts provide for contractually

 

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scheduled price changes. From time to time, we also negotiate pricing or other changes with our existing customers that include, but are not limited to, extending or renewing a contract or adjusting minimum volumes. Our usage and volume-based pricing, which is seasonal and cyclical, can cause our revenues to fluctuate which could affect our business. Additionally, our usage and volume-based pricing can be negatively impacted by macroeconomic trends, which may disproportionately impact our revenues.

We depend on satisfied customers to succeed and in certain instances have aligned our financial goals with those of our customers. Our historical contracts are subject to de minimis minimum commitments with certain of our customers, who may be less willing or able to accommodate modifications to our contracts given their own business constraints. Such minimum commitment obligations may not be cost-effective or provide positive returns.

Risks Related to Employee Matters

We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel or hire additional personnel, our ability to develop and successfully market our business could be harmed.

We believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial, technical, finance, creative and sales and marketing personnel. Moreover, we believe that our future success is highly dependent on the contributions of our executive officers. All of our officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. In addition, the loss of any key employees or the inability to attract or retain qualified personnel could delay the development and introduction of, and harm our ability to sell, our software solutions and harm the market’s perception of us. Qualified individuals are in high demand, and we may incur significant costs to attract them. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing sales, operational and managerial requirements, or may be required to pay increased compensation in order to do so. If we are unable to attract and retain the qualified personnel we need to succeed, our business will suffer.

Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees. Certain of our employees have become, or will soon become, vested in a substantial amount of stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the vested options, or if the exercise prices of the options that they hold are significantly above the market price of our common stock. If we are unable to retain our named executive officers or other key employees, our business will be harmed.

If we fail to offer high-quality customer support, or if our support is more expensive than anticipated, our business and reputation could suffer.

Our customers rely on our customer support services to resolve issues and realize the full benefits provided by our solutions. High-quality support is also important to maintain and drive further adoption by our existing customers. We primarily provide customer support over the phone, chat and via web portal. If we do not help our customers quickly resolve issues and provide effective ongoing support, or if our support personnel or methods of providing support are insufficient to meet the needs of our customers, our ability to retain customers, increase adoption by our existing customers and acquire new customers could suffer, and our reputation with existing or potential customers could be harmed. If we are not able to meet the customer support needs of our customers during the hours that we currently provide support, we may need to increase our support coverage and provide additional support, which may reduce our profitability.

 

 

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Growth may place significant demands on our management and our infrastructure.

Our growth has placed and may continue to place significant demands on our management and our operational and financial infrastructure. As our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure to offer an increasing number of customers enhanced software solutions, features and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. To support our growth, we must also continue to improve our management resources and our operational and financial controls and systems, and these improvements may increase our expenses more than anticipated and result in a more complex business. Continued growth could also strain our ability to maintain reliable service levels for our customers and recruit, train, and retain highly skilled personnel.

Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business would be harmed.

Risks Related to Our Common Stock and This Offering

There has been no prior public trading market for our common stock, and an active trading market may not develop or be sustained following this offering.

We have been approved to list our common stock on the New York Stock Exchange, or NYSE, under the symbol “MLNK.” However, there has been no prior public trading market for our common stock. We cannot assure you that an active trading market for our common stock will develop on such exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares of our common stock.

The trading price of our common stock could be volatile, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price of our common stock was determined through negotiation among us and the underwriters. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our stock following this offering. In addition, the trading prices of technology stocks have historically experienced high levels of volatility. The trading price of our common stock following this offering may fluctuate substantially. Following the completion of this offering, the market price of our common stock may be higher or lower than the price you pay in the offering, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:

 

   

announcements of new products or technologies, commercial relationships, acquisitions or other events by us or our competitors;

 

   

changes in how customers perceive the benefits of software solutions;

 

   

shifts in the mix of billings and revenues attributable to subscription fees, service fees, and product partner fees, from quarter to quarter;

 

   

departures of key personnel;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

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fluctuations in the trading volume of our shares or the size of our public float;

 

   

sales of large blocks of our common stock, including by the Thoma Bravo Funds;

 

   

actual or anticipated changes or fluctuations in our operating results;

 

   

whether our operating results meet the expectations of securities analysts or investors;

 

   

changes in actual or future expectations of investors or securities analysts;

 

   

litigation involving us, our industry or both;

 

   

regulatory developments;

 

   

actual or perceived security compromises or breaches;

 

   

general economic conditions and trends, including changes in interest rates and consumer borrowing habits; and

 

   

major catastrophic events in domestic and foreign markets.

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has often been brought against that company.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.

We may issue additional capital stock in the future that will result in dilution to all other stockholders. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.

Management will have broad discretion over the use of our proceeds from this offering.

The principal purposes of this offering include increasing our capitalization and financial flexibility, creating a public market for our stock, thereby enabling access to the public equity markets by our employees and stockholders, obtaining additional capital and increasing our visibility in the marketplace. We intend to use our net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures, and to repay $         million of the borrowings outstanding under our first lien credit agreement, and all of the borrowings outstanding under our second lien credit agreement. See section titled “Use of Proceeds.” We cannot specify with certainty the particular uses of the net proceeds to us from this offering except for repayment of outstanding debt. After repayment of outstanding debt, we will have discretion in using these proceeds and, until the net proceeds are used they may be placed in investments that do not produce a significant return, if any. Investors in this offering will need to rely upon the judgment of our management with respect to the use of our proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, operating results and financial condition could be harmed.

 

 

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We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

Our charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Our charter and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

 

   

a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

after Thoma Bravo ceases to beneficially own at least 30% of the outstanding shares of our common stock, removal of directors only for cause, and subject to the affirmative vote of the holders of 66 2/3% or more of our outstanding shares of capital stock then entitled to vote at a meeting of our stockholders called for that purpose;

 

   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

allowing Thoma Bravo to fill any vacancy on our board of directors for so long as affiliates of Thoma Bravo own 30% or more of our outstanding shares of common stock and thereafter, allowing only our board of directors to fill vacancies on our board of directors, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

after Thoma Bravo ceases to beneficially own at least a majority of the outstanding shares of our common stock, a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

after we cease to be a controlled company, the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, our chief executive officer or our president (in the absence of a chief executive officer), which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

   

after we cease to be a controlled company, the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our charter relating to the management of our business (including our classified board structure) or certain provisions of our bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;

 

   

the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt;

 

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advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us; and

 

   

a prohibition of cumulative voting in the election of our board of directors, which would otherwise allow less than a majority of stockholders to elect director candidates.

Our charter also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law, and prevents us from engaging in a business combination, such as a merger, with an “interested stockholder” that is, a person or group who acquires at least 15% of our voting stock for a period of three years from the date such person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. However, our charter also provides that transactions with Thoma Bravo, including the Thoma Bravo Funds, and any persons to whom any Thoma Bravo Fund sells its common stock will be deemed to have been approved by our board of directors.

We may issue preferred stock the terms of which could adversely affect the voting power or value of our common stock.

Following the completion of this offering, our charter will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock.

Our bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our bylaws, which will become effective upon the completion of this offering, will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a breach of fiduciary duty by one or more of our directors, officers or employees, (iii) any action asserting a claim against us arising pursuant to the Delaware General Corporation Law or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. Additionally, the forum selection clause in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our bylaws. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. Our bylaws will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. This provision would not apply to any action brought to enforce a duty or liability created by the Exchange Act and the rules and regulations thereunder. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder

 

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as a result of our exclusive forum provisions. We recognize that the forum selection clause may impose additional litigation costs on stockholders who assert the provision is not enforceable and may impose more general additional litigation costs in pursuing any such claims. Additionally, the forum selection clause in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

Investors in this offering will experience dilution.

Based on the initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), purchasers of our common stock in this offering will experience dilution of $         per share in the pro forma as adjusted net tangible book value per share of common stock from the initial public offering price, and our pro forma as adjusted net tangible book value as of March 31, 2021 after giving effect to this offering would be $         per share. This dilution is due in large part to earlier investors having paid substantially less than the initial public offering price when they purchased their shares. See the section titled “Dilution” below.

Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could reduce the market price of our common stock.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Based on the total number of outstanding shares of our common stock as of March 31, 2021, upon completion of this offering, we will have approximately                  shares of common stock outstanding, based on the initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus). All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our “affiliates” as defined in Rule 144 under the Securities Act.

In addition,                  shares of common stock were subject to outstanding stock options as of March 31, 2021. These shares will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 of the Securities Act. We intend to file a registration statement on Form S-8 under the Securities Act covering all the shares of common stock subject to stock options outstanding and reserved for issuance under our stock incentive plans. That registration statement will become effective immediately on filing, and shares covered by that registration statement will be eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements described below. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the market price of our common stock could decline.

Subject to certain exceptions described in the section titled “Underwriting,” we, our directors and executive officers, the Thoma Bravo Funds, the selling stockholders and the other holders of substantially all of our common stock and equity awards outstanding immediately prior to this offering have agreed or will agree to enter into lock-up agreements with the underwriters of this offering pursuant to which we and they have agreed or will agree that, subject to certain exceptions, we and they will not dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our common stock for a period of 180 days after the date of this prospectus. However, if (i) we have publicly released our earnings results for the quarterly period during which this offering occurred, and (ii) the 180-day lock-up period is scheduled to end during a broadly applicable period during which trading in our securities would not be permitted under our insider trading policy, or a blackout period, or within the five trading days prior to a blackout period, then the

 

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lock-up period applicable to our directors, officers, and securityholders will instead end ten trading days prior to the commencement of the blackout period; provided that in no event will the lock-up period end prior to 120 days after the date of this prospectus. See the sections titled “Underwriting” and “Shares Eligible for Future Sale” for more information. However, BofA Securities, Inc. may, in its sole discretion, waive the contractual lock-up before the lock-up agreements expire. After the lock-up agreements expire,                  shares outstanding as of March 31, 2021 (assuming the closing of the offering) will be eligible for sale in the public market, of which                  shares are held by Thoma Bravo and our directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 and various vesting agreements. Further, following the closing of this offering, Thoma Bravo will have rights, subject to certain conditions, to require us to file registration statements for the public resale of its shares of our common stock or to include such shares in registration statements that we may file. Sales of a substantial number of such shares upon expiration of, or the perception that such sales may occur, or early release of the securities subject to, the lock-up agreements, could cause our stock price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

Risks Related to Potential Conflicts of Interests and Related Parties

We expect to be a controlled company within the meaning of the NYSE rules and, as a result, will qualify for and intend to rely on exemptions from certain corporate governance requirements.

Upon completion of this offering, Thoma Bravo, as the ultimate general partner of the Thoma Bravo Funds, will beneficially own a majority of the voting power of all classes of our outstanding voting stock. As a result, we will be a controlled company within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that:

 

   

a majority of the board of directors consist of independent directors as defined under the rules of the NYSE;

 

   

the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

annual performance evaluations of the nominating and governance committee and the compensation committee be performed.

These requirements will not apply to us as long as we remain a controlled company. Following this offering, we intend to utilize some or all of these exemptions. Additionally, upon the completion of this offering, our executive officers, directors, and the Thoma Bravo Funds will beneficially own approximately         % of our issued and outstanding shares of common stock, based on the sale by us of                  shares of common stock in this offering. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. See the section titled “Management—Status as a Controlled Company” below.

 

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Thoma Bravo has a controlling influence over matters requiring stockholder approval, which may have the effect of delaying or preventing changes of control, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest.

Thoma Bravo, as the ultimate general partner of the Thoma Bravo Funds, beneficially owns in the aggregate         % of our stock and, after this offering, will beneficially own in the aggregate         % of our issued and outstanding shares of common stock based on the sale by us of                  shares of common stock in this offering. As a result, Thoma Bravo could exert significant influence over our operations and business strategy and would have sufficient voting power to determine the outcome of all matters requiring stockholder approval. These matters may include:

 

   

the composition of our board of directors, which has the authority to direct our business and to appoint and remove our officers;

 

   

approving or rejecting a merger, consolidation or other business combination;

 

   

raising future capital; and

 

   

amending our charter and bylaws, which govern the rights attached to our common stock.

For so long as Thoma Bravo beneficially owns 30% or more of our outstanding shares of common stock, Thoma Bravo will have the right to designate a majority of our board of directors. For so long as Thoma Bravo has the right to designate a majority of our board of directors, the directors designated by Thoma Bravo are expected to constitute a majority of each committee of our board of directors, other than the audit committee, and the chairman of each of the committees, other than the audit committee, is expected to be a director designated by Thoma Bravo. At such time as we are not a “controlled company” under the NYSE corporate governance standards, our committee membership will comply with all applicable requirements of those standards and a majority of our board of directors will be “independent directors,” as defined under the rules of the NYSE.

This concentration of ownership of our common stock could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our common stock that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock. This concentration of ownership may also adversely affect our share price.

Thoma Bravo may pursue corporate opportunities independent of us that could present conflicts with our and our stockholders’ interests.

Thoma Bravo is in the business of making or advising on investments in companies and holds (and may from time to time in the future acquire) interests in or provides advice to businesses that may directly or indirectly compete with our business or be suppliers or customers of ours. Thoma Bravo may also pursue acquisitions that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

Our charter provides that none of our officers or directors who are also an officer, director, employee, partner, managing director, principal, independent contractor or other affiliate of Thoma Bravo will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual pursues or acquires a corporate opportunity for its own account or the account of an affiliate, as applicable, instead of us, directs a corporate opportunity to any other person, instead of us or does not communicate information regarding a corporate opportunity to us. Such provision will apply for so long as Thoma Bravo holds any of our securities.

 

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Risks Related to Operating as a Public Company

For as long as we are an emerging growth company, we will not be required to comply with certain requirements that apply to other public companies.

We are an emerging growth company, as defined in the JOBS Act. For as long as we are an emerging growth company, unlike other public companies, we will not be required to, among other things: (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of larger public companies; or (iv) hold nonbinding advisory votes on executive compensation and any golden parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for adopting new or revised financial accounting standards. We intend to take advantage of the longer phase-in periods for the adoption of new or revised financial accounting standards permitted under the JOBS Act until we are no longer an emerging growth company. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to the JOBS Act.

We will remain an emerging growth company for up to five full fiscal years, although we will lose that status sooner if we have at least $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates (and have been a public company for at least 12 months and have filed one annual report on Form 10-K), or issue more than $1.0 billion of non-convertible debt over a three-year period.

To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If securities analysts were to downgrade our stock, publish negative research or reports or fail to publish reports about our business, our competitive position could suffer, and our stock price and trading volume could decline.

The trading market for our common stock will, to some extent, depend on the research and reports that securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts. We do not currently have and may never obtain research coverage by securities analysts. If no or few securities analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us should downgrade our stock or publish negative research or reports, cease coverage of our company or fail to regularly publish reports about our business, our competitive position could suffer, and our stock price and trading volume could decline.

 

 

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The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act, and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company, we will need to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act, the Securities Exchange Act of 1934, as amended, related regulations of the SEC and the requirements of the NYSE, with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses. We will need to:

 

   

institute a more comprehensive compliance function;

 

   

comply with rules promulgated by the NYSE;

 

   

continue to prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

 

   

establish new internal policies, such as those relating to insider trading; and

 

   

involve and retain to a greater degree outside counsel and accountants in the above activities.

We will also be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis, beginning with our fiscal year ending December 31, 2022. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company,” as defined in the JOBS Act. We will be required to disclose significant changes made in our internal control procedures on a quarterly basis.

Our compliance with Section 404 will require that we incur substantial expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and enhance the system and process documentation necessary to perform the evaluation needed to comply with Section 404. While we have made progress in enhancing our controls and systems, we will need to invest significant time, effort, and financial resources to meet our ongoing public reporting obligations following this offering, including enhancing our ability to track the terms and provisions of our customer contracts through use of our enterprise resource planning system. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce accurate financial reports and are important to help prevent material misstatements of our financial reports and/or financial fraud.

During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses in our internal controls over financial reporting in the future. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

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In addition, we expect that being a public company subject to these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements other than statements of historical fact included in this prospectus, including statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in this prospectus. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future financial performance, including our expectations regarding our revenue, annual recurring revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, revenue mix and ability to achieve and maintain future profitability;

 

   

our ability to execute on our strategies, plans, objectives and goals;

 

   

our ability to compete with existing and new competitors in existing and new markets and offerings;

 

   

our ability to develop and protect our brand;

 

   

our ability to effectively manage privacy and information and data security;

 

   

increases in spending by financial institutions on cloud-based technology;

 

   

anticipated trends and growth rates in our business and in the markets in which we operate;

 

   

our ability to maintain and expand our customer base and our partner network;

 

   

our ability to sell our applications and expand internationally;

 

   

our ability to comply with laws and regulations;

 

   

our ability to anticipate market needs and successfully develop new and enhanced solutions to meet those needs;

 

   

the impact of the COVID-19 pandemic on our industry, business and results of operations;

 

   

our ability to successfully identify, acquire and integrate complementary businesses and technologies;

 

   

our ability to hire and retain necessary qualified employees to grow our business and expand our operations;

 

   

the evolution of technology affecting our applications, platform and markets;

 

   

economic and industry trends;

 

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seasonal fluctuations in consumer borrowing trends;

 

   

our ability to adequately protect our intellectual property;

 

   

the increased expenses associated with being a public company;

 

   

our ability to service our debt obligations; and

 

   

our anticipated uses of the net proceeds from this offering.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

 

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MARKET AND INDUSTRY DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources, and on our knowledge of the markets for our solutions. This information involves a number of assumptions and limitations and you are cautioned not to give undue weight to these estimates. In addition, the industry in which we operate, as well as the projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate, are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus, that could cause results to differ materially from those expressed in these publications and reports.

Certain information in the text of this prospectus is contained in independent industry publications and publicly-available reports. The source of these independent industry publications is provided below:

 

   

EY, Global Banking Outlook 2018: Pivoting Toward an Innovation-Led Strategy, 2018.

 

   

IDC, Worldwide Public Cloud Services Spending Guide—Forecast 2020 | Oct (V3 2020), October 2020.

 

   

National Credit Union Administration, Quarterly Credit Union Data Summary, December 2000-2020.

 

   

Credit Unions Online, 100 Best Credit Unions in the U.S., September 2020.

 

   

FDIC, FDIC Community Banking Study, December 2020.

 

   

Cornerstone Advisors, Total Addressable Market Study, January 2021.

 

   

Federal Reserve Bank of St. Louis, Economic Research Division, Federal Reserve Economic Data.

 

   

Federal Deposit Insurance Corporation, Historical Bank Data.

 

   

Experian, Experian 2020 Consumer Credit Review, January 2021.

 

   

National Credit Union Administration, Credit Union and Bank Rates 2021 Q1, March 2021.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $         million, assuming an initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of the shares being offered by the selling stockholders.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $         million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds that we receive from this offering by approximately $         million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders.

We intend to use a portion of our net proceeds from this offering to repay $         million of the borrowings outstanding under our first lien credit agreement, and all of the borrowings outstanding under our second lien credit agreement.

Borrowings under our term loan pursuant to our first lien credit agreement, or Term Facility, bear interest at a floating rate which can be, at our option, either (1) a Eurodollar rate for a specified interest period plus an applicable margin of up to 4.00% or (2) an alternate base rate plus an applicable margin of up to 3.00%. The applicable margins for Eurodollar rate and base rate borrowings are each subject to a reduction of 0.25% based on our consolidated first lien net leverage ratio. The Eurodollar rate applicable to the Term Facility is subject to a “floor” of 1.0% per annum. The borrowings under the revolving credit facility under our first lien credit agreement, or our Revolving Credit Facility, bear interest at a floating rate which can be, at our option, either (1) a Eurodollar rate for a specified interest period plus an applicable margin of up to 3.25% or (2) a base rate plus an applicable margin of up to 2.25%. The applicable margins for Eurodollar rate borrowings are subject to reductions to 3.00% and 2.75% and the applicable margins for base rate borrowings are subject to reductions to 2.00% and 1.75%, in each case based on our consolidated first lien net leverage ratio. The Eurodollar rate applicable to the Revolving Credit Facility is subject to a “floor” of 0.0%. The alternate base rate for any day is a fluctuating rate per annum equal to the highest of (a) the “prime rate” effect on such day as last quoted by The Wall Street Journal, (b) the federal funds effective rate in effect on such day, plus 0.50% per annum (c) the Eurodollar rate for a one-month interest period plus 1.00% and (d) solely with respect to the Term Facility, 2.00% per annum. Borrowings under the Term Facility mature on May 31, 2025, and borrowings under the Revolving Credit Facility mature on May 31, 2023.

Borrowings under our term loan facility pursuant to our second lien credit agreement, or our Second Lien Credit Facility, bear interest at a floating rate which can be, at our option, either (1) on a Eurodollar rate for a specified interest period plus 8.00% or (2) an alternate base rate plus 7.00%. The alternate base rate for any day is a fluctuating rate per annum equal to the highest of (a) the “prime rate” in effect on such day as last quoted by The Wall Street Journal, (b) the federal funds effective rate in effect on such day, plus 0.50% per annum, (c) the Eurodollar rate for a one-month interest period plus 1.00%, and (d) 2.00% per annum. Borrowings under the Second Lien Credit Facility will mature on May 31, 2026.

 

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We intend to use the balance of our net proceeds for general corporate purposes, including working capital, operating expenses, capital expenditures, and to acquire complementary businesses, products, services or technologies.

Our management will have broad discretion in the application of the net proceeds of this offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds. Pending the use of proceeds to us from this offering as described above, we intend to invest the net proceeds to us from this offering in short-term and long-term interest-bearing obligations, including government and investment-grade debt securities and money market funds.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividend on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not expect to pay any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. In addition, our credit facilities place restrictions on the ability of our subsidiaries to pay cash dividends or make distributions to us. See the section titled “Description of Indebtedness.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2021:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to the completion of the Corporate Conversion, including the conversion of              of our outstanding member’s units into              shares of our common stock; and

 

   

on a pro forma as adjusted basis, giving effect to the pro forma adjustment set forth above and the sale and issuance by us of                  shares of our common stock in this offering, assuming an initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds from this offering as set forth under the section titled “Use of Proceeds.”

The information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Use of Proceeds” that are included elsewhere in this prospectus.

 

   

As of March 31, 2021

 
    (unaudited)  
(in thousands, except share data)  

Actual

   

Pro Forma

   

Pro Forma
As Adjusted

 

Cash and restricted cash

  $ 75,652     $                   $                
 

 

 

   

 

 

   

 

 

 

Total long-term liabilities(1)

  $ 614,382     $       $    

Preferred Class A units, no par value; unlimited units authorized, 319,859 units issued and outstanding, actual; no units authorized, issued or outstanding, pro forma and pro forma as adjusted(2)

    319,859      

Members’ deficit/Stockholders’ equity

     

Class B common units, no par value; unlimited units authorized, 103,928,777 units issued and outstanding, actual; no units authorized, issued or outstanding, pro forma and pro forma adjusted(2)

    —        

Preferred stock,                  par value per share; no shares authorized, issued or outstanding, actual;                  shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

    —        

Common stock,                  par value; no shares authorized, issued and outstanding, actual;                  shares authorized,                  issued and outstanding, pro forma(2);                  shares authorized,                  shares issued and outstanding, pro forma as adjusted

    —        

Additional paid-in capital

    2,703      

Accumulated deficit

    (23,119    
 

 

 

   

 

 

   

 

 

 

Total Members’ deficit/Stockholders’ equity

    (20,416    
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 913,825     $       $    
 

 

 

   

 

 

   

 

 

 

 

(1) 

Includes $499.8 million in principal outstanding pursuant to our first lien credit agreement and $125.0 million in principal outstanding pursuant to our second lien credit agreement, net of $11.1 million in combined debt issuance costs. In addition, there was $0.1 million outstanding related to our acquired PPP loan. These amounts are net of the current portion of long-term debt.

(2) 

Reflects the conversion of                  of our outstanding member’s units into                  shares of our common stock in conjunction with the Corporate Conversion.

 

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Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of cash and restricted cash, additional paid-in capital, total stockholders’ equity and total capitalization by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and restricted cash, additional paid-in capital, total stockholders’ equity and total capitalization by $         million, assuming no change in the assumed initial public offering price per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The information presented in the table above does not include:

 

   

             shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2021, at a weighted average exercise price of $         per share;

 

   

             shares of our common stock that will become available for future issuance under our 2021 Stock Option and Incentive Plan, which will become effective prior to the effectiveness of the registration statement of which this prospectus is a part; and

 

   

             shares of our common stock that will become available for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective prior to the effectiveness of the registration statement of which this prospectus is a part.

 

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DILUTION

If you purchase shares of our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share immediately after this offering. Dilution in net tangible book value (deficit) per share to investors purchasing shares of our common stock in this offering represents the difference between the amount per share paid by investors purchasing shares of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering.

Net tangible book value (deficit) per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of our common stock outstanding. Our historical net tangible book value (deficit) as of March 31, 2021 was $(560.6) million, or $(5.44) per share. Our pro forma net tangible book value (deficit) as of March 31, 2021 was $        , or $         per share, based on the total number of shares of our common stock outstanding as of March 31, 2021, to give effect to the completion of the Corporate Conversion prior to the completion of this offering.

After giving effect to the sale by us of              shares of our common stock in this offering at the assumed initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value (deficit) as of March 31, 2021 would have been $        , or $         per share. This represents an immediate increase in pro forma as adjusted net tangible book value (deficit) of $         per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $         per share to investors purchasing shares of our common stock in this offering. There is no impact on dilution per share to investors participating in this offering as a result of the sale of shares by the selling stockholders. The following table illustrates this dilution:

 

Assumed initial public offering price per share

    $            

Historical net tangible book value (deficit) per share as of March 31, 2021

  $ (5.44  

Pro forma increase in historical net tangible book value per share as of March 31, 2021

   
 

 

 

   

Pro forma net tangible book value per share as of March 31, 2021

   

Increase in pro forma net tangible book value per share attributed to investors purchasing shares in this offering

   
 

 

 

   

Pro forma as adjusted net tangible book value per share immediately after the completion of this offering

   
   

 

 

 

Dilution to investors purchasing shares in this offering

    $    
   

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $        , and would increase or decrease, as applicable, dilution per share to investors purchasing shares of our common stock in this offering by $        , assuming the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of our common stock offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $         per share and increase or decrease, as applicable, the dilution to investors purchasing shares of our common stock in this offering by $         per share, assuming the assumed initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus) remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The following table presents, on a pro forma as adjusted basis, as of March 31, 2021, after giving effect to (i) the completion of the Corporate Conversion prior to the completion of this offering and (ii) the sale by us of                  shares of our common stock in this offering at the assumed initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus) the difference between the existing stockholders and the investors purchasing shares of our common stock in this offering with respect to the number of shares of our common stock purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

 

   

Shares
Purchased

   

Total
Consideration

   

Average
Price Per
Share

 
   

Number

   

Percent

   

Amount

   

Percent

 

Existing stockholders

                         $                       $                

Investors purchasing shares of our common stock in this offering

         

Total

      100   $         100   $    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sales of shares of common stock by the selling stockholders in this offering will reduce the number of shares of common stock held by existing stockholders to                 , or approximately     % of the total shares of common stock outstanding after this offering, and will increase the number of shares held by new investors to                 , or approximately     % of the total shares of common stock outstanding after this offering.

The information presented in the table above does not include:

 

   

                 shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2021, at a weighted average exercise price of $         per share;

 

   

                 shares of our common stock that will become available for future issuance under our 2021 Stock Option and Incentive Plan, which will become effective prior to the effectiveness of the registration statement of which this prospectus is a part; and

 

   

                 shares of our common stock that will become available for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective prior to the effectiveness of the registration statement of which this prospectus is a part.

Our 2021 Stock Option and Incentive Plan and 2021 Employee Stock Purchase Plan each provides for annual automatic increases in the number of shares of our common stock reserved thereunder, as more fully described in the section titled “Executive Compensation—Employee Benefit and Equity Compensation Plans.”

To the extent that any outstanding options to purchase shares of our common stock are exercised there will be further dilution to investors participating in this offering.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

We have derived the selected consolidated statements of operations and cash flow data for the years ended December 31, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the selected consolidated statements of operations and cash flow data for the three months ended March 31, 2020 and 2021 and our condensed consolidated balance sheet data as of March 31, 2021 from our consolidated financial statements included elsewhere in our prospectus. Our historical results are not necessarily indicative of the results to be expected in the future.

The following selected consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,    

Three Months Ended March 31,

 
Consolidated statements of operations data (in thousands,
except share and unit and per share and per unit amounts)
   2019     2020     2020     2021  
                 (unaudited)  

Revenues, net

   $ 152,731     $ 199,340     $ 43,618     $ 67,811  

Cost of revenues:

        

Subscription and services(1)

     39,551       49,480       11,135       16,614  

Amortization of developed technology

     7,771       8,874       2,073       2,862  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     47,322       58,354       13,208       19,476  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     105,409       140,986       30,410       48,335  

Operating expenses:

        

General and administrative(1)

     59,536       54,640       13,625       18,345  

Research and development(1)

     15,966       18,691       4,307       6,986  

Sales and marketing(1)

     9,589       9,371       2,024       3,599  

Loss on termination of financing obligation due to related party

     —         5,755       —         —    

Impairment of trademarks

     —         5,362       —         —    

Acquisition related costs

     —         1,579       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     85,091       95,398       19,956       28,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     20,318       45,588       10,454       19,405  

Other (income) expense, net:

        

Other income

     (16     (41     (1     (20

Interest expense, net

     38,053       34,686       8,857       10,062  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     38,037       34,645       8,856       10,042  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) from income taxes

     (17,719     10,943       1,598       9,363  
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision (benefit) from income taxes

     (5,115     1,792       272       2,132  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (12,604     9,151       1,326       7,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

Class A preferred return

     (31,460     (34,411     (8,285     (8,932
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common unitholders

   $ (44,064   $ (25,260   $ (6,959   $ (1,701
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common unit:

        

Net loss attributable to common unitholders, basic and diluted

   $ (0.44   $ (0.25   $ (0.07   $ (0.02

Weighted average units outstanding:

        

Basic and diluted

     99,899,718       102,256,260       101,601,874       103,102,460  

Pro forma net loss per share of common stock:

        

Pro forma net loss per share, basic and diluted (unaudited)(2)

                          $                        

Pro forma weighted average shares outstanding:

                                                  

Basic and diluted (unaudited)(2)

        

 

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(1) 

Includes unit-based compensation as follows:

 

     Year Ended December 31,     

Three Months Ended March 31,

 
(in thousands)    2019      2020      2020      2021  
                   (unaudited)  

Cost of revenues

   $ 87      $ 180      $ 27      $ 72  

General and administrative

     1,307        1,952        472        353  

Research and development

     169        339        72        82  

Sales and marketing

     228        370        69        136  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total unit-based compensation expense

   $    1,791      $    2,841      $ 640      $ 643  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Unaudited Pro Forma Net Loss Per Share

The unaudited pro forma basic and diluted loss per share for the year ended December 31, 2020 and the three months ended March 31, 2021, as set forth in the table below gives effect to the Corporate Conversion as if it had occurred on January 1, 2020. Shares to be sold in this offering are excluded from the unaudited pro forma basic and diluted net loss per share calculation.

Pro forma net loss per share of common stock, basic and diluted, for the year ended December 31, 2020 and the three months ended March 31, 2021 are calculated as follows:

 

     Year Ended
December 31, 2020
    Three Months Ended
March 31, 2021
 
           (unaudited)  

Numerator

    

Net loss attributable to common unitholders

   $ (25,260   $ (1,701

Denominator

    
Weighted-average number of common shares outstanding, basic and diluted      102,256,260       103,102,460  
Pro forma adjustments to reflect:     
Assumed effect of Corporate Conversion     
Shares used to compute pro forma net loss per share, basic and diluted     
Pro forma net loss per share attributable to common stockholders, basic and diluted     

 

     As of December 31,     

As of March 31,

 
Consolidated balance sheet data (in thousands)    2019     2020      2021  
                  (unaudited)  

Cash and cash equivalents

   $ 97,770     $ 37,739      $ 73,510  

Total assets

     869,407       963,705        997,162  

Working capital (deficit)

     65,189       (80,627      35,466  

Total debt, including current portion

     520,282       519,832        617,593  

Accumulated deficit

     (39,353     (30,338      (23,119

Total members’ deficit

     (36,191     (26,429      (20,416

 

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NON-GAAP FINANCIAL MEASURES

In addition to our financial information presented in accordance with GAAP, we use certain “non-GAAP financial measures” to clarify and enhance our understanding of past performance and future prospects. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. As discussed below, we monitor the non-GAAP financial measures described below, and we believe they are helpful to investors.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, interest expense, which is excluded from adjusted EBITDA has been and will continue to be a significant recurring expense in our business for the foreseeable future. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Adjusted EBITDA

We define adjusted EBITDA as net loss before interest expense, taxes, depreciation, amortization, unit-based compensation expense, certain expenses associated with our IPO, acquisition and sponsor related costs, deferred revenue reduction from purchase accounting, and lease termination charges. We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results for the following reasons:

 

   

adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;

 

   

our management uses adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance;

 

   

adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations, and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and

 

   

our investor and analyst presentations include adjusted EBITDA as a supplemental measure of our overall operating performance.

In addition, we believe that adjusted EBITDA margin, which we define as our adjusted EBITDA for a particular period divided by our revenues for the same period and expressed as a percentage, provides a useful period-to-period metric for both our management and investors to evaluate our core business performance.

Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of adjusted EBITDA as an analytical tool has limitations such as:

 

   

depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and adjusted EBITDA does not reflect cash requirements for such replacements;

 

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adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;

 

   

excludes the impact of the write-down of deferred revenues due to purchase accounting in connection with our acquisitions, and therefore includes revenues that will never be recognized under GAAP;

 

   

adjusted EBITDA does not reflect the potentially dilutive impact of unit-based compensation;

 

   

adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

   

adjusted EBITDA does not reflect tax payments that could reduce cash available for use; and

 

   

other companies, including companies in our industry, might calculate adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.

Because of these and other limitations, you should consider adjusted EBITDA together with our GAAP financial measures including cash flow from operations and net loss. We believe excluding these measures are useful for the following reasons:

 

   

Interest expense and taxes. Our adjusted EBITDA amount excludes interest expense and taxes, which we add back to our net loss to analyze the performance of operations in each period without regard to our particular capital structure and the impact of interest expense on any taxes we may owe. We believe that adding back interest expense and taxes provides for a better comparison of our operating results to our peer companies.

 

   

Depreciation and amortization. Our adjusted EBITDA amount excludes non-cash depreciation and amortization expenses. In order to derive EBITDA, we add back depreciation and amortization to analyze the performance of our operations in each period without regard to such expenses.

 

   

Unit-based compensation. We provide adjusted EBITDA information that excludes expenses related to unit-based compensation. We believe that the exclusion of unit-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of unit-based compensation vary from period to period and company to company due to different valuation methodologies, unit-based compensation expense is non-cash, subjective assumptions, and the variety of award types. Because of these unique characteristics of unit-based compensation, we exclude these expenses when analyzing the organization’s business performance.

 

   

Expenses associated with IPO. We exclude certain non-recurring expenses relating to our IPO consisting of professional fees and other expenses. We believe that providing these non-GAAP measures that exclude expenses associated with our IPO allows users of our financial statements to better review and understand the historical and current results of our continuing operations. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

 

   

Acquisition and sponsor related costs. We exclude certain expense items resulting from our acquisitions, such as legal, accounting and consulting fees, and retention expense. We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, acquisitions result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations. Additionally, we incur quarterly management fees payable to our sponsor, Thoma Bravo, that are anticipated to cease upon IPO. We believe that providing these non-GAAP measures that exclude acquisition and sponsor related costs,

 

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allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments.

 

   

Deferred revenue reduction from purchase accounting. We exclude certain amounts resulting from our acquisitions, such as deferred revenue reductions from purchase accounting. We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, acquisitions result in adjustments that would not otherwise have been incurred by us in the normal course of our organic business operations. In excluding deferred revenue reduction from purchase accounting from adjusted EBITDA, we are including an amount of income not otherwise reflected in our GAAP results of operations. We believe that providing these non-GAAP measures that exclude deferred revenue reductions from purchase accounting, allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments.

 

   

Lease termination charges. We provide non-GAAP information that excludes lease termination charges related to leases that we are currently not occupying or have recently exited. These charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

 

   

Impairment of trademarks. We provide non-GAAP information that excludes trademark impairment charges related to our decision to rebrand certain product trademarks. These charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 

(in thousands)

   2019     2020     2020     2021  
                 (unaudited)  

Reconciliation of net income (loss) to adjusted EBITDA

        

Net income (loss)

   $ (12,604   $ 9,151     $ 1,326     $ 7,231  

Interest expense

     38,053       34,686       8,857       10,062  

Taxes

     (5,115     1,792       272       2,132  

Depreciation and amortization

     38,600       40,199       9,695       12,351  

Unit-based compensation expense

     1,791       2,841       640       643  

Expenses associated with IPO

     —         395       —         194  

Acquisition and sponsor related costs

     2,000       3,579       500       1,373  

Deferred revenue reduction from purchase accounting

     1,726       851       176       324  

Impairment of trademarks

     —         5,362       —         —    

Lease termination charges

     —         5,755       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 64,451     $ 104,611     $ 21,466     $ 34,310  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin

     (8 )%      5     3     11
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     42     52     49     51
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this prospectus. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Our fiscal year ends on December 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period.

Overview

We are a leading provider of cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies, or CRAs-providing services to 1,925 customers, including 63 of the leading 100 credit unions per Credit Unions Online (as of September 2020), and a majority of the financial institutions on Forbes’ 2020 lists of America’s Best Credit Unions and Banks. Financial institutions are undergoing digital transformation as they seek to transition business models, create new revenue streams, and increase customer engagement. We support our customers’ digital transformations by helping them create a superior consumer experience by providing mission-critical loan origination software, or LOS, digital lending platform, and data analytics. Our solutions allow our customers to meet their clients’ financial needs across the institution, which enables improved client acquisition and retention. Additionally, our solutions allow our customers to operate more efficiently by enabling automated loan decisioning and enhanced risk management.

The effective delivery and management of secure and advanced digital solutions in the complex and heavily-regulated financial services industry requires significant resources, personnel, and expertise. We provide digital solutions that are designed to be highly configurable, scalable, and adaptable to the specific needs of our customers. We design and develop our solutions with an open platform approach intended to provide comprehensive integration among our solution offerings and our customers’ internal systems and third-party systems. Our solutions are central to the financial institution’s technology ecosystem and help drive additional business volume for our customers both directly and indirectly through our Partner Marketplace. Our omni-channel borrowing experience seamlessly integrates all the touch points a borrower may have with the financial institution (remote via the web or an app, in person at a branch, or telephonically through an operator). In addition to our streamlined workflow, which has been refined over twenty years with input from across our customer base, our Partner Marketplace provides our customers optional integrations with over 580 partners as of March 31, 2021, the collective capabilities of which we believe further distinguish our solution from that of competitors.

The financial services sector is in the midst of a transition from offering primarily in-branch services to providing hybrid in-person and digital experiences for consumers. This transition has recently accelerated, leading to increased investment in software that enables digital capabilities. We are well-positioned to assist our customers to compete with tier 1 banks and digital market entrants. We enable mid-market financial institutions to leverage their cost of capital advantage and community presence by allowing them to execute faster. With the digital edge we provide, our customers can become more competitive in this evolving environment, which, in turn, can drive further volume on our platform.

We deliver our solutions to the substantial majority of our customers using a software-as-a-service, or SaaS, model under which our customers pay subscription fees for the use of our solutions as well as transaction

 

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fees for transactions processed using our solutions. Our subscription fees consist of revenues from software solutions that are governed by pricing and terms contained in contracts between us and our customers. The initial term of our contracts is typically three years but may range from one to seven years. Our customer contracts are typically not cancellable without penalty. Our contracts almost always contain an evergreen autorenewal term that is often for a one-year extension after the initial term, but can extend the autorenewal of the contract up to the length of the original term. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the product, fees per search or per loan application or per closed loan (with contractual minimums based on volume) that are charged on a monthly basis, which we refer to as volume-based fees. We earn additional revenues based on the volume of loan applications or closed loans processed above our customers’ contractual minimums.

As a result of this pricing approach, our revenues from our customers grow as our customers add additional transaction types, purchase more modules, utilize more of our partner integrations, or see increased transaction volume. We generally sell our solutions through our direct sales organization or channel partners and recognize our subscription fee revenues over the terms of the customer agreements.

Our revenues per customer vary from period to period based on the length and timing of customer implementations, sales of additional solutions to existing customers, changes in the number of transactions processed (including impacts from seasonality and cyclicality), and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing.

We seek to strengthen and grow our customer relationships by providing consistent, high-quality implementations, and customer support services, which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We plan to continue investing in migrating our solutions onto a single platform resident in a public cloud and driving product development to further increase customer cross-selling opportunities and retention. We believe that our increased focus on our go-to-market strategy and strategic partnerships will drive incremental opportunities for revenue and accelerate client cross-sell growth.

In addition, we believe there is untapped market potential in the loan origination and digital banking markets. We believe significant opportunity for additional customer acquisition and revenue growth exists as financial institutions continue to adopt online lending and account opening practices and require more efficient technologies. We believe there is significant demand for consumer loan origination and digital banking capabilities given the average consumer’s total debt level reached $92,727 in 2020, according to research from Experian. We provide these services to institutions of all sizes and complexities, but currently focus on the middle market. By focusing on better sales execution, providing and allocating resources where needed, and improving marketing efforts, we are confident in our ability to expand our customer base within our current target market.

Our current focus is on the middle market, catering largely to financial institutions such as community banks and credit unions with assets under management between $100 million and $10 billion. In recent years community banks have continued to compete with their typically larger non-community bank competitors, and the FDIC recently reported that in 2019 net interest income accounted for over 78 percent of community bank net operating revenues. A large opportunity exists in expanding our target market to new customers with less than $100 million or greater than $10 billion in assets under management. In our down-market, smaller institutions commonly use spreadsheets or other inexpensive alternatives. These companies have a smaller volume of loans per month, but there is opportunity to alter our solutions to offer decreased pricing and functionality in order to lower implementation fees.

We have continuously invested in expanding and improving our solutions since our solutions were first introduced two decades ago, and we intend to continue investing both organically and inorganically through acquisitions to expand our portfolio. We are focused on introducing new solutions and enhancing services and

 

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capabilities in areas including digital lending, data insights, and collections to further expand our reach into the consumer lending markets. In addition to developing our solutions organically, we may selectively pursue acquisitions, joint ventures, or other strategic transactions that provide additional capabilities or customers, or both. Acquisitions to date have included CRIF Lending Solutions in June 2018, and Teledata Communications, Inc., or TCI, in November 2020. TCI is the creator of DecisionLender, a SaaS loan origination solution first released in 1998. We believe that with the addition of TCI, our position as a vendor of choice is enhanced among financial institutions as a provider of solutions to manage their needs from initiation of client relationships to facilitating the extension of credit to their clients. In December 2020, we acquired all of the assets of TazWorks, LLC, or TazWorks. TazWorks provides software and data solutions to CRAs focused on the employment and tenant screening market, a market that is adjacent and complementary to our current solutions for credit-focused CRAs.

We have designed our Partner Marketplace to act as the gateway for third parties to access our customers, which allows our customers to leverage the capabilities from these third parties to enable an accelerated loan process with improved efficiency and reduced cost. With over 580 partners as of March 31, 2021, we are able to capitalize on one-time service fees from our partners upon their integration into our Partner Marketplace and a revenue share from our partners as they derive revenues from our software solution. As we grow our business, we expect to add additional vendor partners and drive additional monetization opportunities. We also intend to cultivate and leverage existing and future partners to grow our market presence.

We believe that delivery of consistent, high-quality implementations and customer support services is a significant driver of purchasing and renewal decisions of our prospects and customers. To develop and maintain a reputation for high-quality service, we seek to build deep relationships with our customers through our customer service organization, which we staff with personnel who are motivated by our common mission of using technology to help our customers succeed and who are knowledgeable with respect to the regulated and complex nature of the financial services industry. As we grow our business, we intend to continue to invest in and grow our services organization to support our customers’ needs and maintain our reputation.

Impact of the COVID-19 Pandemic

Efforts to contain the spread of COVID-19 in the United States (including in California where our corporate headquarters are located) and other countries have included quarantines, shelter-in-place orders, and various other government restrictions in order to control the spread of this virus.

We have been carefully monitoring the COVID-19 pandemic as it continues to progress and its potential impact on our business. We, like virtually all other companies, have suspended travel for employees, temporarily closed our offices, and, since mid-March 2020, have required that most employees work remotely. We have been operating effectively under our remote work model, which we anticipate continuing for the foreseeable future to ensure the safety and well-being of our employees.

The COVID-19 pandemic creates significant risks and uncertainties for our customers, their clients, our partners and suppliers, our employees, and our business generally. However, we believe that these events could accelerate the transition to digital financial solutions and that our portfolio of digital financial services solutions and our position and reputation in the market provide us with an opportunity to continue to serve clients and grow our business. We are being cautious as a result of the uncertainties and risks posed by the COVID-19 pandemic and in response to these uncertainties we are actively monitoring the impacts of COVID-19 on our financial results and adjusting our hiring plans and investments accordingly. Over the longer term, and subject to more certainty regarding the COVID-19 pandemic, we remain committed to continuing to strategically invest across our organization to position us to increase revenues and to improve operating efficiencies. We are also considering how our physical facilities requirements might change when we eventually return to increased onsite operations, including the costs associated with ensuring a safe work environment and the likely increased prevalence of working from home for many employees. The timing and amount of these investments will vary

 

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based on the rate at which we expect to add new customers or sell additional solutions to existing customers, our customer retention rates, the implementation and support needs of our customers, our software development plans, our technology and physical infrastructure requirements, and changes thereto resulting from the COVID-19 pandemic, and other needs of our organization (including needs resulting from the COVID-19 pandemic). Many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources.

Key Operating Measures

In addition to the United States generally accepted accounting principles, or GAAP, measures described below in “—Components of Operating Results,” we monitor the following operating measures to evaluate growth trends, plan investments, and measure the effectiveness of our sales and marketing efforts:

Annual Recurring Revenue

We calculate annual recurring revenue, or ARR, as the total subscription fee revenues calculated in the latest twelve-month measurement period for those revenue-generating customers and partners in place throughout the entire twelve-month measurement period plus the subscription fee revenues calculated on an annualized basis from new customer or partner activations in the measurement period. We believe that the annualized subscription fee revenues calculated from these new customer and partner activations in a particular measurement period provides a reasonable estimate of the total subscription fee revenues to be recognized from these customers and partners once they are on our platform for a full twelve-month period due to the long-term nature of our agreements and the volume-based aspect of our pricing model. Although our business can be impacted by seasonality of consumer borrowing trends, we anticipate the impacts of any seasonality to be comparable on a period-to-period basis. Our calculation includes only subscription fee revenues and excludes any professional services revenues and other revenues. We believe ARR is an important metric indicating the scale and growth of our business. Our ARR was $142.6 million and $176.7 million as of December 31, 2019 and 2020, respectively. Our use of ARR has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate annual recurring revenue differently, which reduces its usefulness as a comparative measure.

Total Customers

We define a customer as a separate and distinct entity that has a contractual relationship with us to use our software solutions. A single corporation could have multiple distinct contracting divisions or subsidiaries, all of which together would be considered a single customer. The net rate at which we add customers varies based on our implementation capacity, the size and unique needs of our customers, the readiness of our customers to implement our solutions, customer acquisition through any strategic transactions we complete, and customer attrition, including as a result of merger and acquisition activity among financial institutions. We believe the number of total customers is a key indicator of our market penetration, growth, and future revenues. Our ability to attract new customers is primarily impacted by the effectiveness of our marketing programs and our direct sales force. Accordingly, we have invested in and intend to continue to invest in our marketing programs and direct sales force. We had 1,270 and 1,925 customers on our platform as of December 31, 2019 and 2020, respectively.

Organic Customer Growth Rate

We utilize our organic customer growth rate to not only monitor the satisfaction of our customers but also to measure our ability to successfully bring new customers on board and evaluate the effectiveness of our business strategies. We define organic customer growth rate as the percentage increase in the number of total customers on the last day of the measurement period compared to the number of total customers on the day twelve months prior to the measurement date, which measures the change in total customers, net of both

 

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customer terminations and customer additions between the respective measurement periods. Our organic customer growth rate calculation excludes and will exclude the impact of any acquisitions or divestitures. We had an organic customer growth rate of 3.8% for the measurement period ended December 31, 2020. Our use of organic customer growth rate has limitations as an analytical tool, and investors should not consider it in isolation.

ARR Net Retention Rate

We calculate ARR Net Retention Rate by calculating the ARR recorded in the latest twelve-month measurement period for those revenue-generating customers in place throughout the entire twelve-month measurement period. We divide the result by the ARR recorded from the twelve-month period that is immediately prior to the beginning of the current measurement period, for all revenue-generating customers in place at the beginning of the current measurement period. Our ARR Net Retention Rate was 120% for the year ended December 31, 2020. Our ARR Net Retention Rate provides insight into:

 

   

growth in the usage of our solutions;

 

   

sales of new solutions and services to our existing customers during the current year; and

 

   

customer attrition.

The most significant drivers of improvements in our ARR Net Retention Rate each year have historically been the number of new customers in the prior twelve-month period and the usage of our solutions due to adoption of additional modules or the increase in volume transacted on our systems. The most significant factors in the decrease in ARR Net Retention Rate are customer attrition and reduced volume transacted on our systems either due to decreased product usage or lower transaction volumes. Our use of ARR Net Retention Rate has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate revenue retention rate differently, which reduces its usefulness as a comparative measure.

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, we use certain “non-GAAP financial measures” to clarify and enhance our understanding of past performance and future prospects. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position, or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor the non-GAAP financial measures described below, and we believe they are helpful to investors.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, interest expense, which is excluded from adjusted EBITDA has been and will continue to be a significant recurring expense in our business for the foreseeable future. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Adjusted EBITDA and Adjusted EBITDA Margin

See the section titled “Non-GAAP Financial Measures—Adjusted EBITDA” for a discussion on Adjusted EBITDA and Adjusted EBITDA margin and their use as analytical tools.

 

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The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated (in thousands):

 

    

Year Ended
December 31,

   

Three Months Ended
March 31,

 
(in thousands)    2019     2020     2020     2021  
                 (unaudited)  

Reconciliation of net income (loss) to adjusted EBITDA

        

Net income (loss)

   $ (12,604   $ 9,151     $ 1,326     $ 7,231  

Interest expense

     38,053       34,686       8,857       10,062  

Taxes

     (5,115     1,792       272       2,132  

Depreciation and amortization

     38,600       40,199       9,695       12,351  

Unit-based compensation expense

     1,791       2,841       640       643  

Expenses associated with IPO

     —         395       —         194  

Acquisition and sponsor related costs

     2,000       3,579       500       1,373  

Deferred revenue reduction from purchase accounting

     1,726       851       176       324  

Impairment of trademarks

     —         5,362       —         —    

Lease termination charges

     —         5,755       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 64,451     $ 104,611     $ 21,466     $ 34,310  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin

     (8 )%      5     3     11
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     42     52     49     51
  

 

 

   

 

 

   

 

 

   

 

 

 

Components of Operating Results

We have one primary business activity and operate in a single operating and reportable segment.

Revenues

Our revenues consist of three components: subscription fees, professional services and other revenues.

Subscription Fee Revenues

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

Our software solutions are hosted in either our data centers or cloud-based hosting services and are generally available for use as hosted application arrangements under subscription fee agreements. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date our solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met. Additional fees for monthly usage above the levels included in the standard subscription fee are recognized as revenue in the month when the usage amounts are determined and reported.

Professional Services Revenues

We offer implementation, configuration, consulting, and training services for our software solutions and SaaS offerings. Revenues from services are recognized in the period the services are performed, provided that revenue recognition criteria have been met.

Other Revenues

We enter into referral and marketing agreements with various third parties, in which revenues are primarily generated from transactions initiated by the third parties’ customers. We may introduce our customers

 

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to a referral partner or offer additional services available from the referral partner via an integration with our solutions. We market our partners’ solutions to our customers as a way to generate revenue, but also to ensure that our customers are leveraging the full benefit of our solution, which includes the capabilities offered through our partners. Revenues are recognized in the period the services are performed, provided that collection of the related receivable is reasonably assured.

Cost of Revenues

Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses, and unit-based compensation for employees providing services to our customers. This includes the costs of our implementation, customer support, data center, and customer training personnel, as well as costs related to research and development personnel who perform implementation and customer support services. Additional expenses include fees paid to third party vendors in connection with delivering services to customers.

Cost of revenues also includes cloud-based hosting services, an allocation of general overhead costs, and the amortization of developed technology. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation.

We capitalize certain software development costs related to programmers, software engineers, and quality control teams working on our software solutions. We commence amortization of capitalized costs for solutions that have reached general release. Capitalized software development costs are amortized to cost of revenues over their estimated economic lives.

We intend to continue to increase our investments in our implementation and customer support teams and technology infrastructure to serve our customers and support our growth. We expect cost of revenues to continue to grow in absolute dollars as we grow our business but to fluctuate as a percentage of revenues based principally on the level and timing of implementation and support activities and other related costs.

Gross Profit and Gross Margin

Gross profit is revenues less cost of revenues, and gross margin is gross profit as a percentage of revenues. Gross profit has been and will continue to be affected by various factors, including the mix of our subscription fee, professional service and other revenues, the costs associated with our personnel, third party vendors and cloud-based hosting services, and the extent to which we expand our implementation and customer support services. We expect that our gross margin will fluctuate from period to period depending on the interplay of these various factors. Our gross margin was 69.0% and 70.7% for 2019 and 2020, respectively, and 69.7% and 71.3% for the three months ended March 31, 2020 and 2021, respectively.

Operating Expenses

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. They also include costs related to our acquisitions and the resulting amortization of acquired intangible assets from those acquisitions. We intend to continue to hire new employees and make other investments to support our anticipated growth. As a result, we expect our operating expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as our business scales through continued customer acquisition and expansion of existing customers.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and other personnel-related costs, including commissions, employee benefits, bonuses, and unit-based compensation. Sales and marketing expenses also include expenses related to advertising, lead generation, promotional event programs, corporate communications, travel, and allocated overhead.

 

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Sales and marketing expenses as a percentage of total revenues will change in any given period based on several factors including the addition of newly-hired sales professionals, the number and timing of newly-installed customers, and the amount of sales commissions expense amortized related to those customers. Commissions related to software sales are generally capitalized and then amortized over the expected period of customer benefit.

Sales and marketing expenses are also impacted by the timing of significant marketing programs such as our annual client conference, which we typically hold during the second quarter. We plan to continue investing in sales and marketing by increasing our number of sales and marketing personnel and expanding our sales and marketing activities. As a result, we expect our sales and marketing expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as we scale the business and integrate our acquisitions. We believe these investments will help us build brand awareness, add new customers, and expand sales to our existing customers as they continue to buy more solutions from us.

Research and Development

Research and development expenses include salaries and personnel-related costs, including employee benefits, bonuses, unit-based compensation, third-party contractor expenses, software development costs, allocated overhead, and other related expenses incurred in developing new solutions and enhancing existing solutions.

Certain research and development costs that are related to our software development, which include salaries and other personnel-related costs, including employee benefits and bonuses attributed to programmers, software engineers, and quality control teams working on our software solutions, are capitalized and are included in intangible assets, net on the consolidated balance sheets.

We believe that continuing to improve and enhance our solutions is essential to maintaining our reputation for innovation and growing our customer base and revenues. We plan to continue investing in research and development by increasing the number of our software developers. As a result, we expect our research and development expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as we scale the business, including through integration of our acquisitions.

General and Administrative

General and administrative expenses consist primarily of salaries and other personnel-related costs, including employee benefits, bonuses, and unit-based compensation, of our administrative, finance and accounting, information systems, legal, and human resources employees. General and administrative expenses also include consulting and professional fees, insurance, and travel.

General and administrative include depreciation and amortization of property and equipment and amortization of acquired intangibles. Depreciation of fixed assets is computed on a straight-line basis over the estimated useful lives of the assets, which range from three to five years for computer equipment and software, three to seven years for office equipment and furniture, and twenty-five years for buildings. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the useful life of the assets.

Identifiable intangible assets with finite lives are amortized over their estimated useful lives on either a straight-line or accelerated basis, depending on the nature of the intangible asset. Customer relationships and trademarks with finite useful lives are amortized on a straight-line basis.

We expect to continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a public company. These expenses include

 

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costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of directors’ and officers’ liability insurance, and investor relations activities. As a result, we expect our general and administrative expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as we scale the business and adjust to being a public reporting company.

Total Other (Income) Expense, Net

Other Income

Other income primarily consists of customer receipts that were paid as part of settlements related to billing disputes or buyout of agreements for early terminations.

Interest Expense, net

Interest expense consists primarily of interest attributable to our credit facilities, amortization of a financing obligation from a failed sale-leaseback transaction, and amortization of lender-related fees and other direct incremental costs of securing financing, partially offset by interest income from our interest-bearing cash accounts.

Provision for Income Taxes

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to federal income taxes in the United States and numerous state jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense.

We recognize deferred tax assets to the extent that these assets are more likely than not to be realized. If they are not, deferred tax assets are reduced by a valuation allowance. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is subsequently determined that deferred tax assets would be more likely than not realized in the future, in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. After a review of the four sources of taxable income (as described above), and after consideration of our continuing cumulative income position, as of December 31, 2020, the Company has not recorded a valuation allowance on its deferred tax assets.    

We have recorded an uncertain tax position with respect to our R&D credits. There are no penalties or interest recorded on these liabilities as the credits have not yet been fully utilized, and therefore the uncertain tax position is recorded primarily as a reduction of the deferred tax asset related to these credits.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses incurred during the reporting periods. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, deferred revenue, assets recognized from costs to obtain a contract with a customer, accounts receivable, fair value of financial instruments, unit-based compensation, business combinations, goodwill and intangible assets, impairment of long-lived assets, research and development and capitalized software, and income taxes. These judgments are based on our historical experience, terms of our existing contracts, our evaluation of trends in the

 

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industry, and information available from outside sources as appropriate. Our actual results may differ from those estimates. While our significant accounting policies are described in the notes to our financial statements, also included in this registration statement, we believe these critical accounting policies are the most important to understanding when evaluating our reported financial results.

Revenue Recognition

Revenue-generating activities are directly related to the sale, implementation, and support of our solutions. We derive the majority of our revenues from subscription fees for the use of our solutions, which include annual fees, platform partner fees, and volume-based fees, as well as revenues for customer support and professional implementation services related to our solutions.

Subscription Fee Revenues

Our software solutions are generally available for use as hosted application arrangements under subscription fee agreements. Our software solutions consist of an obligation for us to provide continuous access to a technology solution that we host and routine customer support, both of which we account for as a stand-ready performance obligation. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date our solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met. Additional fees for monthly usage above the levels included in the standard subscription fee are recognized as revenue in the month when the usage amounts are determined and reported.

We have a limited number of legacy customers that host and manage our solutions on-premises under term license and maintenance agreements. This type of arrangement is no longer sold and represents an immaterial amount of our subscription fee revenues. However, there is no planned sunset or end of life for these on-premises solutions.

Professional Services Revenues

We offer implementation, consulting and training services for our software solutions and SaaS offerings. Revenues from services are recognized in the period the services are performed, provided that collection of the related receivable is probable.

Other Revenues

We enter into referral and marketing agreements with various third parties, in which our revenues are primarily generated from transactions initiated by the third parties’ customers. We may introduce our customers to a referral partner or offer additional services available from the referral partner via an integration with our software solutions. Revenues are recognized in the period the services are performed, provided that collection of the related receivable is probable.

Significant Judgments

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting in the new revenue standard. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgments include whether the series guidance under ASC 606 applicable to our subscription services and whether implementation and training services represent distinct performance obligations. We have contracts with customers that often include multiple performance obligations, usually including multiple subscription and implementation services. For these contracts, we account for individual

 

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performance obligations that are distinct separately by allocating the contract’s total transaction price to each performance obligation in an amount based on the relative standalone selling price, or SSP, of each distinct good or service in the contract.

In determining whether SaaS services are distinct, we considered whether the series guidance applies to our subscription services. We considered various factors including that substantially all of our SaaS arrangements involve the transfer of a service to the customer, which represents a performance obligation that is satisfied over time because the customer simultaneously receives and consumes the benefits of the services provided. Customer support services, forms maintenance, and subscription services are considered a series of distinct services that are accounted for as a single performance obligation as the nature of the services are substantially the same and have the same pattern of transfer (i.e., distinct days of service). For these contracts, we allocate the ratable portion of the consideration to each period based on the services provided in such period.

In determining whether implementation services are distinct from subscription services, we considered that there is not a significant level of integration between implementation and subscription services. Further, implementation services in our contracts provide benefit to the customer with other readily available resources and the implementation services generally are not interdependent with the SaaS subscription services. Therefore, implementation services are generally accounted for as a separate performance obligation, as they represent distinct services that provide benefit to the customer apart from SaaS services.

Consulting and training services are generally considered a separate performance obligation as they are considered distinct services that provide a benefit to the customer on their own.

Determination of Standalone Selling Price

The determination of SSP for each distinct performance obligations requires judgment. Performance obligations are generally sold at standard prices and subscriptions are generally coterminous. Therefore it is rare that any reallocation of transaction consideration is required. Our best evidence of stand-alone selling price is the observable price at which products and services are sold separately to our customers in similar circumstances or to similar customers in a single transaction, which is generally the stated contract price.

Timing of Revenue Recognition

We believe that it is the passage of time that corresponds to the satisfaction of our performance obligation, so the appropriate measurement of progress is a time-based input method based on estimated or projected hours to complete the professional installation services.

Other Considerations

We evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) with respect to the vendor reseller agreements pursuant to which we resell certain third-party solutions along with our solutions. Generally, we report revenues from these types of contracts on a gross basis, meaning the amounts billed to customers are recorded as revenues, and expenses incurred are recorded as cost of revenues. Where we are the principal, we first obtain control of the inputs to the specific service and direct their use to create the combined output. Our control is evidenced by involvement in the integration of the service with our solutions before it is transferred to their customers and is further supported by being primarily responsible to their customers and having a level of discretion in establishing pricing. In cases where we do not obtain control prior to the transfer of services, and we are acting as an agent, revenue is reported on a net basis, with costs being recorded as a reduction to revenue.

Deferred Revenue

Our deferred revenue balance consists of subscription and implementation fees which have been invoiced upfront and are recognized as revenue only when the revenue recognition criteria are met. Our

 

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subscription contracts are typically invoiced to our customers annually and revenue is recognized ratably over the service term. Implementation and service-based fees are most commonly invoiced 50% upfront and 50% upon completion. We believe that it is the passage of time that corresponds to the satisfaction of our subscription implementation and professional services performance obligations, so the appropriate measurement of progress is a time-based input method based on estimated or projected hours to complete the professional services. Accordingly, our deferred revenue balance does not include revenues for future years of multi-year non-cancellable contracts that have not yet been billed and is considered current since the deferred balance will all be recognized within 12 months.

Assets Recognized from Costs to Obtain a Contract with a Customer

We capitalize sales commissions related to our customer agreements because the commission charges are both incremental and recoverable from the non-cancellable customer agreements, and therefore, should be recorded as an asset and charged to expense over the expected period of customer benefit. Under ASC 606, Revenue from Contracts with Customers, we capitalize commissions and bonuses for those involved in the sale of our SaaS offerings, including direct employees and indirect supervisors, as these are incremental to the sale. We begin amortizing deferred costs for a particular customer agreement once the revenue recognition criteria are met and amortize those deferred costs over the expected period of customer benefit, which we estimate to be three years. We determined the period of benefit by considering factors such as historically high renewal rates with similar customers and contracts, initial contract length, an expectation that there will still be a demand for the product at the end of its term, and the significant costs to switch to a competitor’s product, all of which are governed by the estimated useful life of the technology. Current costs are included in prepaid expenses and other current assets, and non-current costs are included in other assets on the consolidated balance sheets.

We apply a practical expedient to expense costs to obtain a contract with a customer, as incurred, when the amortization period would have been one year or less.

Accounts Receivable

Accounts receivable includes billed and unbilled receivables, net of allowance of doubtful accounts. Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The expectation of collectability is based on a review of credit profiles of customers, contractual terms and conditions, current economic trends, and historical payment experience. We regularly review the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine the appropriate amount of allowance for doubtful accounts. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified. To date, such losses have been within management’s expectations.

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, including cash and cash equivalents, approximate fair value due to their high liquidity in actively quoted trading markets and their short maturities. Our accounts receivable, accounts payable, related party receivable due from sellers of MeridianLink, accrued liabilities, related party liability due to sellers of MeridianLink, and deferred revenue approximate fair value due to their short maturities. The carrying value of our long-term debt is considered to approximate the fair value of such debt as of December 31, 2019 and 2020 and as of March 31, 2021, based upon the interest rates that we believe we can currently obtain for similar debt. The inputs used to measure the fair value of these assets are primarily unobservable inputs and, as such, considered Level 3 fair value measurements.

 

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Unit-Based Compensation

We account for unit-based compensation by estimating the fair value of unit-based payment awards at the grant date using the Black-Scholes option-pricing model, and the portion that is ultimately expected to vest is recognized as compensation expense over the requisite service period.

During the period covered by the financial statements included in this prospectus, we were a privately held company with no active public market for our common units. Accordingly, the fair value of the common units underlying our stock-based awards has historically been determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date.

Calculating unit-based compensation expense requires the input of highly subjective assumptions, including the expected term of the unit-based awards, fair value of our units, and unit price volatility. The estimate of the expected term of options granted was determined by utilizing a weighted-average approach, considering the use of the “simplified method” (where the expected term is presumed to be equal to the vesting period plus the midpoint of the remaining contractual term) and an expected liquidation event occurrence. We utilize this method as we do not have the historical experience to calculate the term. Since we are a privately held company with no historical data on volatility of our units, the expected volatility is based on the volatility of similar entities (referred to as guideline companies). In evaluating similarity, we considered factors such as industry, stage of life cycle, size, and financial leverage. The assumptions used in calculating the fair value of unit-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, unit-based compensation expense could be materially different in the future. The risk-free rate for periods within the contractual life of the option is based on U.S. Treasury yield for a term consistent with the expected life of the unit option in effect at the time of grant. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

Business Combinations

The purchase price allocation for business combinations requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. We determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the single asset or group of assets, as applicable, is not a business. If it is not met, we determine whether the single asset or group of assets, as applicable, meets the definition of a business.

We account for business combinations in accordance with Accounting Standards Codification, or ASC, 805, Business Combinations. The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Transaction costs associated with business combinations are expensed as incurred and are included in acquisition related costs in the consolidated statements of operations. We perform valuations of assets acquired and liabilities assumed and allocate the purchase price to the respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business

 

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combination. During the measurement period, if new information is obtained about facts and circumstances that existed as of the acquisition date, changes in the estimated fair values of the net assets recorded may change the amount of the purchase price allocable to goodwill. During the measurement period, which expires one year from the acquisition date, changes to any purchase price allocations that are material to our consolidated financial results will be adjusted prospectively.

Goodwill and Intangible Assets

In connection with our acquisitions and asset purchase discussed within our financial statements also included in this registration statement, we record certain intangible assets. Identifiable intangible assets with finite lives are amortized over their estimated useful lives on either a straight-line or accelerated basis, depending on the nature of the intangible asset. Developed technology, customer relationships, and trademarks with finite useful lives are amortized on a straight-line basis. We periodically review the estimated useful lives and fair values of our identifiable intangible assets, taking into consideration any events or circumstances which might result in a diminished fair value or revised useful life.

The excess purchase price over the fair value of assets acquired is recorded as goodwill. We evaluate and test the recoverability of goodwill for impairment at least annually, on October 1, or more frequently if circumstances indicate that goodwill may not be recoverable. We perform the impairment testing by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of its reporting unit is less than its carrying amount. We have one reporting unit. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the first step of a two-step analysis by comparing the book value of net assets to the fair value of the reporting unit. To calculate any potential impairment, we compare the fair value of a reporting unit with it carrying amount, including goodwill. Any excess of the carrying amount of the reporting unit’s goodwill over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down.

Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions including, without limitation, use of estimates of future prices and volumes for our solutions, capital needs, economic trends, and other factors which are inherently difficult to forecast. If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period. In assessing the qualitative factors, we consider the impact of certain key factors including macroeconomic conditions, industry and market considerations, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance. No impairment of goodwill was identified during 2019 or 2020 or the three months ended March 31, 2020 or 2021.

Impairment of Long-Lived Assets

We evaluate the carrying value of long-lived assets, including intangible assets with finite lives and property and equipment, whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The impairment to be recognized is measured as the amount by which the carrying amount exceeds the fair value of the assets. In the fourth quarter of 2020, we performed an impairment test of definite-lived trademarks which was triggered by our decision to rebrand certain products. Specifically, management made a decision to rebrand the LendingQB and LoansPQ products which are being replaced by the new “MeridianLink” branded product line. As a result of the rebranding decision in December 2020, which was determined to be a triggering event, we recorded an impairment equal to substantially all of the total LendingQB and LoansPQ trademarks carrying values of $5.4 million. Other than the trademark impairment mentioned above, there have been no other impairments of long-lived assets during the years ended December 31, 2019 or 2020 or the three months ended March 31, 2020 or 2021.

 

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Research and Development and Capitalized Software

For development costs related to internal use software, such as our subscription offerings, we follow guidance of ASC 350-40, Internal Use Software. ASC 350-40 sets forth the guidance for costs incurred for computer software developed or obtained for internal use and requires companies to capitalize qualifying computer software development costs, which are incurred during the application development stage. These capitalized costs are to be amortized on a straight-line basis over the expected useful life of the software. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Capitalized costs related to developed technology are included within the intangible assets balance in the consolidated balance sheets.

Income Taxes

We have elected “check the box” C corporation treatment for income tax purposes. We account for income taxes using the assets and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in our tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid, or refunds received, as provided for under currently enacted tax law. Changes in deferred tax assets and liabilities are recorded in the benefit from income taxes.

We recognize deferred tax assets to the extent that these assets are more likely than not to be realized. If they are not, deferred tax assets are reduced by a valuation allowance. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is subsequently determined that deferred tax assets would be more likely than not realized in the future, in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We account for uncertainty in income taxes recognized in our consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized which includes (a) the tax position must be evaluated to determine the likelihood that it is more likely than not of being sustained based solely on the technical merits of the position, and if so, (b) the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The benefit from income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

We report tax related interest and penalties, if any, as income tax expense. There were no interest or penalties recorded for the years ended December 31, 2019 or 2020 or the three months ended March 31, 2020 or 2021.

 

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Results of Operations

Consolidated Statements of Operations

The following table sets forth our consolidated statements of operations data for each of the periods indicated:

 

Consolidated statements of operations data   

Year Ended December 31,

   

Three Months Ended March 31,

 
(in thousands, except share and unit and per share and per
unit amounts)
   2019     2020     2020     2021  
                 (unaudited)  

Revenues, net

   $ 152,731     $ 199,340     $ 43,618     $ 67,811  

Cost of revenues:

        

Subscription and services(1)

     39,551       49,480       11,135       16,614  

Amortization of developed technology

     7,771       8,874       2,073       2,862  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     47,322       58,354       13,208       19,476  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     105,409       140,986       30,410       48,335  

Operating expenses:

        

General and administrative(1)

     59,536       54,640       13,625       18,345  

Research and development(1)

     15,966       18,691       4,307       6,986  

Sales and marketing(1)

     9,589       9,371       2,024       3,599  

Loss on termination of financing obligation due to related party

     —         5,755       —         —    

Impairment of trademarks

     —         5,362       —         —    

Acquisition related costs

     —         1,579       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     85,091       95,398       19,956       28,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     20,318       45,588       10,454       19,405  

Other (income) expense, net:

        

Other income

     (16     (41     (1     (20

Interest expense, net

     38,053       34,686       8,857       10,062  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     38,037       34,645       8,856       10,042  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) from income taxes

     (17,719     10,943       1,598       9,363  
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision (benefit) from income taxes

     (5,115     1,792       272       2,132  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (12,604     9,151       1,326       7,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

Class A preferred return

     (31,460     (34,411     (8,285     (8,932
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common unitholders

   $ (44,064   $ (25,260   $ (6,959   $ (1,701
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common unit:

        

Net loss attributable to common unitholders, basic and diluted

   $ (0.44   $ (0.25   $ (0.07   $ (0.02

Weighted average units outstanding:

        

Basic and diluted

     99,899,718       102,256,260       101,601,874       103,102,460  

 

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(1)

Includes unit-based compensation as follows:

 

     Years Ended
December 31,
     Three Months Ended
March 31,
 
(in thousands)    2019      2020      2020      2021  
                   (unaudited)  

Cost of revenues

   $ 87      $ 180      $ 27      $ 72  

General and administrative

     1,307        1,952        472        353  

Research and development

     169        339        72        82  

Sales and marketing

     228        370        69        136  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total unit-based compensation expense

   $ 1,791      $ 2,841      $ 640      $ 643  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table sets forth our consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

 

    

Year Ended

December 31,

   

Three Months Ended

March 31,

 
     2019     2020     2020     2021  
                 (unaudited)  

Revenues, net

           100           100           100           100

Cost of revenues:

        

Subscription and services

     26     25     26     25

Amortization of developed technology

     5     4     5     4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     31     29     30     29
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     69     71     70     71

Operating expenses:

        

General and administrative

     39     27     31     27

Research and development

     10     9     10     10

Sales and marketing

     6     5     5     5

Loss on termination of financing obligation due to related party

           3            

Impairment on trademarks

           3            

Acquisition related costs

           1            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     56     48     46     43
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     13     23     24     29

Other (income) expense, net

        

Other income

                        

Interest expense, net

     25     17     20     15
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     25     17     20     15
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) from income taxes

     (12 )%      5     4     14
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision (benefit) from income taxes

     (3 )%      1     1     3
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (8 )%      5     3     11
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of Three Months Ended March 31, 2020 and 2021

Revenues, net

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Revenues, net

   $ 43,618      $ 67,811      $ 24,193        55

 

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Revenues increased $24.2 million, or 55%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was in part due to revenue from TCI and TazWorks acquisitions, which accounted for 23% of the growth. The remaining increase resulted from new and ramping customers and also volume increases from existing customers, recognizing that 2021 volumes were not impacted by COVID-19-related shutdowns, which were prevalent in the first quarter of 2020.

Cost of Revenues and Gross Profit

Subscription and services

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Subscription and services

   $ 11,135      $ 16,614      $ 5,479        49

Subscription and services cost of revenues increased $5.5 million, or 49%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to an increase of $2.5 million in third-party costs, driven by higher volumes and additional costs related to TCI and TazWorks’s revenue. The remaining increase was related to higher compensation and benefits spend from the addition of TCI and TazWorks employees.

Amortization of Developed Technology

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Amortization of developed technology

   $ 2,073      $ 2,862      $ 789        38

Amortization of developed technology cost of revenues increased $0.8 million, or 38%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to additional capitalized software costs related to internally developed software and the related amortization.

Gross Profit

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Gross profit

   $ 30,410      $ 48,335      $ 17,925        59

Gross profit increased $17.9 million, or 59%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to an increase of revenues, as described above, partially offset by an increase in cost of revenues due to an increase in third-party costs and the acquisitions of TCI and TazWorks.

Operating Expenses

Sales and Marketing

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Sales and marketing

   $ 2,024      $ 3,599      $ 1,575        78

Sales and marketing expenses increased $1.6 million, or 78%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to increased headcount on our sales and marketing teams.

 

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Research and Development

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Research and development

   $ 4,307      $ 6,986      $ 2,679        62

Research and development expenses increased $2.7 million, or 62%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to additional personnel-related expenses, largely from the acquisition of TCI and TazWorks teams.

General and Administrative

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
    

(unaudited)

               

General and administrative

   $ 13,625      $ 18,345      $ 4,720        35

General and administrative expenses increased $4.7 million, or 35%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. There was a $1.6 million increase in amortization expense related to TCI and TazWorks acquired intangibles. The remaining increase was largely related to higher advisory services spend due to additional work around the potential IPO, various system implementations, and acquisitions.

Other (Income) Expense, net

Other Income

 

    

Three Months Ended
March 31,

   

Change

 
(in thousands)    2020     2021    

        $         

   

    %    

 
     (unaudited)              

Other income

   $ (1   $ (20   $ (19     NM  

Other income increased $0.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to higher customer settlement fees.

Interest Expense, net

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Interest expense, net

   $ 8,857      $ 10,062      $ 1,205        14

Interest expense, net increased $1.2 million, or 14%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to additional interest expense incurred from an incremental term loan borrowing in January 2021 of $100 million.

Provision from Income Taxes

 

    

Three Months Ended
March 31,

    

Change

 
(in thousands)    2020      2021     

        $         

    

    %    

 
     (unaudited)                

Provision from income taxes

   $ 272      $ 2,132      $ 1,860        684

 

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Provision from income taxes increased by $1.9 million, or 684%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to net income before income taxes of $9.4 million during the three months ended March 31, 2021, compared to net income before income taxes of $1.6 million during the three months ended March 31, 2020.

Comparison of Year Ended December 31, 2019 and 2020

Revenues, net

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Revenues, net

   $  152,731      $ 199,340      $ 46,609        31

Revenues increased $46.6 million, or 31%, for fiscal 2020 compared to fiscal 2019. The increase was in part driven by organic new customer growth of 3.8% and inorganic customer growth related to the TCI acquisition of 1.8% in fiscal year 2020. The remaining increase was primarily driven by increased revenues from existing customers. Our mortgage and data and analytics products benefited from higher transaction volumes, largely due to an increase in consumer refinancing during fiscal 2020. An increase in closed and funded loans was the key driver for the increase in our mortgage products and the transactions driving growth for our data and analytics products were primarily for mortgage credit reports. For both our mortgage and data and analytics products, we receive incremental revenues if customers exceed their minimum commitments.

Cost of Revenues and Gross Profit

Subscription and services

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Subscription and services

   $  39,551      $  49,480      $  9,929        25

Subscription and services cost of revenues increased $9.9 million, or 25%, for fiscal 2020 compared to fiscal 2019. The increase was primarily due to an increase of $6.5 million in third-party costs, driven by higher volumes and additional costs related to TCI’s revenue. The remaining increase was related to higher compensation and benefits spend from growth in the services team.

Amortization of Developed Technology

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Amortization of developed technology

   $  7,771      $  8,874      $  1,103        14

Amortization of developed technology cost of revenues increased $1.1 million or 14% for fiscal 2020 compared to fiscal 2019. The increase was primarily due to additional capitalized software cost related to internally developed software and the related amortization.

Gross Profit

 

    

Year Ended

December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Gross profit

   $  105,409      $  140,986      $  35,577        34

 

 

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Gross profit increased $35.6 million, or 34%, for fiscal 2020 compared to fiscal 2019. The increase was primarily due to an increase of revenues, as described above, partially offset by an increase in cost of revenues due to an increase in third-party costs and the acquisition of TCI.

Operating Expenses

Sales and Marketing

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Sales and marketing

   $  9,589      $  9,371      $  (218)        (2 )% 

Sales and marketing expenses decreased $0.2 million, or 2%, for fiscal 2020 compared to fiscal 2019. The decrease was primarily due to a decrease of $0.4 million in tradeshow expenses driven by the cancellation of our 2020 User Conference, offset by an increase in amortization of capitalized commissions expense of $0.4 million.

Research and Development

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Research and development

   $  15,966      $  18,691      $  2,725        17

Research and development expenses increased $2.7 million, or 17%, for fiscal 2020 compared to fiscal 2019. The increase was primarily due to an additional $2.4 million in personnel-related expenses, largely driven by the build out of our product management and partner marketplace teams. In addition, there was $0.4 million in expense for our newly acquired TCI business.

General and Administrative

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

General and administrative

   $  59,536      $  54,640      $  (4,896)        (8 )% 

General and administrative expenses decreased $4.9 million, or 8%, for fiscal 2020 compared to fiscal 2019. The decrease was primarily due to bonuses required to be paid in the first half of 2019 related to the MeridianLink acquisition in 2018, these bonus payments were completed in May 2019 and increased 2019 compensation expense by $4.2 million. The remaining change related to a $0.9 million decrease from the 2019 disposal of a software development project, partially offset by fiscal 2020 costs of the newly acquired TCI business and IPO related offering costs.

Loss on Termination of Financing Obligation

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Loss on termination of financing obligation due to related party

   $  —        $  5,755      $  5,755        NM  

Loss on termination of financing obligation due to related party increased $5.8 million, or 100%, for fiscal 2020 compared to fiscal 2019. The increase was due to the termination of the financing obligation during 2020, for which no similar event occurred in 2019.

 

 

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Impairment on Trademarks

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

%        

 

Impairment on trademarks

   $  —        $  5,362      $  5,362        NM  

Impairment on trademarks increased $5.4 million, or 100%, for fiscal 2020 compared to fiscal 2019. The increase was due to the impairment of the certain trademarks during 2020 as a result of the rebranding of certain product lines, as described above.

Acquisition Related Costs

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Acquisition related costs

   $  —        $  1,579      $  1,579        NM  

Acquisition-related costs increased $1.6 million, or 100%, for fiscal 2020 compared to fiscal 2019. The increase was due to the acquisitions of TazWorks and TCI during 2020.

Other (Income) Expense, net

Other Income

 

    

Year Ended
December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Other income

   $  (16)      $  (41)      $  (25)        156

Other income increased $0.3 million, or 156%, for fiscal 2020 compared to fiscal 2019. The increase was primarily due to higher customer settlement fees.

Interest Expense, net

 

    

Year Ended

December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Interest expense, net

   $  38,053      $  34,686      $  (3,367)        (9 )% 

Interest expense, net decreased $3.4 million, or 9%, for fiscal 2020 compared to fiscal 2019. The decrease was primarily due to a decrease in interest expense incurred on our credit facilities in 2020 as compared to 2019 due to a decreasing loan balance from quarterly principal payments made throughout 2020.

Provision (Benefit) from Income Taxes

 

    

Year Ended

December 31,

    

Change

 
(in thousands)    2019      2020     

        $         

    

    %    

 

Provision (benefit) from income taxes

   $  (5,115)      $  1,792      $  6,907        135

Provision (benefit) from income taxes increased by $6.9 million, or 135%, for fiscal 2020 compared to fiscal 2019. The increase was primarily due to net income before income taxes of $10.9 million during 2020, compared to a net loss before income taxes of $(17.7) million during 2019.

 

 

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Seasonality and Quarterly Results

Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, including seasonality as well as the timing of investments in growing our business. The timing and amount of any transaction revenues generated in excess of the contractually committed monthly minimum fee can be subject to fluctuations of consumer behavior tied to seasonality as well as macroeconomic conditions that impact consumer loan volumes. Typically, consumer loan activity is lower in the fourth calendar quarter of the year, corresponding to the traditional holiday season in the United States.

The timing of our implementation activities and corresponding revenues from new customers also are subject to fluctuation based on the timing of our sales. Sales may tend to be lower in the first quarter of each year than in subsequent quarters but any resulting impact on our results of operation has been difficult to measure due to the timing of our implementations and overall growth in our business. The timing of our implementations also varies period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. Our solutions are often the most frequent point of engagement between our customers and their clients. As a result, we and our customers are very deliberate and careful in our implementation activities to help ensure a successful roll-out of the solutions to their clients. Unusually long or short implementations, for even a small number of customers, may result in short-term quarterly variability in our results of operations.

We provide both Lending Software Solutions and Data Verification Software Solutions to our customers, and we believe that providing a breakdown of our revenues by solution type provides additional insight into period over period performance and the impact of seasonal and cyclical trends. While revenues from our Data Verification Software Solutions continued to increase year over year in fiscal 2020 largely due to the cyclical increase in consumer refinancing and mortgage credit reports during the ongoing COVID-19 pandemic, we continued to experience seasonal declines in the fourth quarter of the calendar year.

Our unaudited quarterly results of operations may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future results.

 

(in thousands)                                                      
    Q1
2019
    Q2
2019
    Q3
2019
    Q4
2019
    Q1
2020
    Q2
2020
    Q3
2020
    Q4
2020
    Q1
2021
 

Subscription fee revenues, net

  $ 34,395     $ 35,178     $ 36,444     $ 31,566     $ 38,771     $ 44,000     $ 46,808     $ 47,460     $ 60,316  

Professional services revenues, net

    1,382       1,932       2,043       6,121       3,749       3,651       3,987       4,913       5,491  

Other revenues, net

    589       612       1,099       1,370       1,098       1,884       1,459       1,560       2,004  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues, net

    36,366       37,722       39,586       39,057       43,618       49,535       52,254       53,933       67,811  

Lending Software Solutions revenues, net

    27,255       27,406       28,759       29,876       30,539       32,799       33,362       37,054       43,134  

Data Verification Software Solutions revenues, net

    9,111       10,316       10,827       9,181       13,079       16,736       18,892       16,879       24,677  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues, net

    36,366       37,722       39,586       39,057       43,618       49,535       52,254       53,933       67,811  

Cost of revenues:

                 

Subscription and services

    9,447       10,384       9,877       9,843       11,135       12,114       12,660       13,571       16,614  

Amortization of developed technology

    1,849       1,915       1,981       2,026       2,073       2,131       2,213       2,457       2,862  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    11,296       12,299       11,858       11,869       13,208       14,245       14,873       16,028       19,476  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    25,070       25,423       27,728       27,188       30,410       35,290       37,381       37,905