UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

or

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

For the transition period from _______ to_______

Commission file number: 001-40680

____________________________

MeridianLink, Inc.

(Exact Name of Registrant as Specified in its Charter)

______________________________

Delaware	82-4844620
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
3560 Hyland Avenue, Suite 200, Costa Mesa, CA	92626
(Address of Principal Executive Offices)	(Zip Code)

(714) 708-6950

(Registrant’s Telephone Number, Including Area Code)

______________________________________________

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x    No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  x    No o

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

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  o    No  x

As of October 31, 2024, there were 75,525,228 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

MeridianLink, Inc.

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023	4
	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	80
Item 5.	Other Information	80
Item 6.	Exhibits	81
	Signatures	83

This Quarterly Report on Form 10-Q includes trademarks, such as MeridianLink®, which are protected under applicable intellectual property laws and are the property of MeridianLink, Inc. or its subsidiaries. This Quarterly Report on Form 10-Q also contains trademarks, service marks, copyrights, and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

MeridianLink uses its investor relations website (https://ir.meridianlink.com), press releases, SEC filings, public conference calls and webcasts, blog posts on its website, as well as its social media channels, such as its LinkedIn page (www.linkedin.com/company/meridianlink), X (formerly Twitter) feed (@meridianlink), and Facebook page (www.facebook.com/MeridianLink/), as a means of disclosing material information and for complying with its disclosure obligations under Regulation FD. Information contained on or accessible through the websites is not incorporated by reference into this Quarterly Report on Form 10-Q, and links for these websites are inactive textual references only.

PART I

Item 1. Financial Statements

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

	As of
	September 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	82,266	$	80,441
Accounts receivable, net	38,868		32,412
Prepaid expenses and other current assets	12,309		11,574
Total current assets	133,443		124,427
Property and equipment, net	2,362		3,337
Right of use assets, net	639		1,140
Intangible assets, net	214,125		251,060
Goodwill	610,063		610,063
Other assets	7,311		6,224
Total assets	$	967,943	$	996,251
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,165	$	4,405
Accrued liabilities	31,914		30,673
Deferred revenue	29,767		17,224
Current portion of debt, net of debt issuance costs	3,773		3,542
Total current liabilities	71,619		55,844
Debt, net of debt issuance costs	466,137		420,004
Deferred tax liabilities, net	11,369		10,823
Long-term deferred revenue	160		792
Other long-term liabilities	336		541
Total liabilities	549,621		488,004
Commitments and contingencies (Note 5)
Stockholders’ Equity:
Preferred stock, $0.001 par value; 50,000,000 shares authorized; zero shares issued and outstanding at September 30, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value; 600,000,000 shares authorized, 75,107,642 and 78,447,701 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively	126		129
Additional paid-in capital	692,285		654,634
Accumulated deficit	(274,089)		(146,516)
Total stockholders’ equity	418,322		508,247
Total liabilities and stockholders’ equity	$	967,943	$	996,251

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

3

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

(in thousands, except share and per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues, net	$	80,369	$	76,488	$	236,861	$	229,038
Cost of revenues:
Subscription and services	22,790		22,488		67,507		69,973
Amortization of developed technology	4,860		4,524		14,392		13,488
Total cost of revenues	27,650		27,012		81,899		83,461
Gross profit	52,719		49,476		154,962		145,577
Operating expenses:
General and administrative	29,649		23,218		84,065		70,182
Research and development	10,019		11,248		29,409		36,814
Sales and marketing	10,492		9,441		32,495		26,212
Restructuring related costs	—		—		4,179		3,621
Total operating expenses	50,160		43,907		150,148		136,829
Operating income	2,559		5,569		4,814		8,748
Other (income) expense, net:
Interest and other income	(1,371)		(1,342)		(3,963)		(2,596)
Interest expense	10,165		9,780		29,544		28,127
Total other expense, net	8,794		8,438		25,581		25,531
Loss before income taxes	(6,235)		(2,869)		(20,767)		(16,783)
Provision for (benefit from) income taxes	816		(800)		1,260		(3,818)
Net loss	$	(7,051)	$	(2,069)	$	(22,027)	$	(12,965)
Net loss per share:
Basic	$	(0.09)	$	(0.03)	$	(0.29)	$	(0.16)
Diluted	$	(0.09)	$	(0.03)	$	(0.29)	$	(0.16)
Weighted average common stock outstanding:
Basic	75,631,670		81,073,915		76,495,022		80,883,310
Diluted	75,631,670		81,073,915		76,495,022		80,883,310

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

4

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(unaudited)

(in thousands, except share data)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2023	78,447,701	$	129	$	654,634	$	(146,516)	$	508,247
Vesting of restricted stock units (“RSUs”)	261,847	—		—		—		—
Issuance of common stock due to exercise of stock options	26,856	—		191		—		191
Shares withheld related to net share settlement of RSUs	8,440	—		(294)		—		(294)
Repurchases of common stock	(2,406,015)	(2)		—		(44,375)		(44,377)
Share-based compensation expense	—	—		7,872		—		7,872
Net loss	—	—		—		(5,306)		(5,306)
Balance at March 31, 2024	76,338,829	$	127	$	662,403	$	(196,197)	$	466,333
Vesting of RSUs	924,333	1		—		—		1
Issuance of common stock due to exercise of stock options	86,350	—		531		—		531
Issuance of common stock through employee stock purchase plan	69,899	—		944		—		944
Shares withheld related to net share settlement of RSUs	(91,589)	—		(1,382)		—		(1,382)
Repurchases of common stock	(1,553,894)	(2)		—		(29,914)		(29,916)
Share-based compensation expense	—	—		12,695		—		12,695
Net loss	—	—		—		(9,670)		(9,670)
Balance at June 30, 2024	75,773,928	$	126	$	675,191	$	(235,781)	$	439,536
Vesting of RSUs	529,912	1		—		—		1
Issuance of common stock due to exercise of stock options	230,535	—		4,006		—		4,006
Shares withheld related to net share settlement of RSUs	(57,729)	—		(1,234)		—		(1,234)
Repurchases of common stock	(1,369,004)	(1)		—		(31,257)		(31,258)
Share-based compensation expense	—	—		14,322		—		14,322
Net loss	—	—		—		(7,051)		(7,051)
Balance at September 30, 2024	75,107,642	$	126	$	692,285	$	(274,089)	$	418,322

5

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(unaudited)

(in thousands, except share data)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	80,644,452	$	128	$	621,396	$	(42,433)	$	579,091
Vesting of restricted stock awards	59,558	4		—		—		4
Vesting of RSUs	65,770	—		—		—		—
Issuance of common stock due to exercise of stock options	97,412	—		594		—		594
Shares withheld related to net share settlement of RSUs	(1,769)	—		(24)		—		(24)
Repurchases of common stock	(228,529)	—		—		(3,499)		(3,499)
Share-based compensation expense	—	—		4,939		—		4,939
Net loss	—	—		—		(5,666)		(5,666)
Balance at March 31, 2023	80,636,894	$	132	$	626,905	$	(51,598)	$	575,439
Vesting of restricted stock awards	3,497	—		—		—		—
Vesting of RSUs	575,623	—		—		—		—
Issuance of common stock due to exercise of stock options	51,105	—		431		—		431
Issuance of common stock through employee stock purchase plan	61,759	—		793		—		793
Shares withheld related to net share settlement of RSUs	(53,240)	—		(1,026)		—		(1,026)
Repurchases of common stock	(107,978)	—		—		(1,646)		(1,646)
Share-based compensation expense	—	—		9,090		—		9,090
Net loss	—	—		—		(5,230)		(5,230)
Balance at June 30, 2023	81,167,660	$	132	$	636,193	$	(58,474)	$	577,851
Vesting of RSUs	222,316	—		—		—		—
Issuance of common stock due to exercise of stock options	99,914	—		608		—		608
Shares withheld related to net share settlement of RSUs	(16,969)	—		(353)		—		(353)
Repurchases of common stock	(1,845,708)	(2)		—		(30,675)		(30,677)
Share-based compensation expense	—	—		8,406		—		8,406
Net loss	—	—		—		(2,069)		(2,069)
Balance at September 30, 2023	79,627,213	$	130	$	644,854	$	(91,218)	$	553,766

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

6

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(22,027)	$	(12,965)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	43,689		43,388
Provision for expected credit losses	604		627
Amortization of debt issuance costs	747		897
Share-based compensation expense	34,683		22,216
Deferred income taxes	546		(4,507)
Loss on disposal of property and equipment	90		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(7,060)		(1,726)
Prepaid expenses and other assets	(1,896)		(4,595)
Accounts payable	1,758		3,632
Accrued liabilities	944		(782)
Deferred revenue	11,911		9,301
Net cash provided by operating activities	63,989		55,486
Cash flows from investing activities:
Capitalized software additions	(5,483)		(7,004)
Purchases of property and equipment	(213)		(347)
Return of escrow deposit	—		30,000
Funds received in connection with former business combination	—		1,219
Acquisition, net of cash acquired – Beanstalk Networks LLC	—		326
Net cash (used in) provided by investing activities	(5,696)		24,194
Cash flows from financing activities:
Repurchases of common stock	(104,847)		(35,660)
Proceeds from exercise of stock options	4,728		1,633
Proceeds from employee stock purchase plan	944		793
Taxes paid related to net share settlement of restricted stock units	(2,910)		(1,403)
Principal payments of debt	(3,468)		(3,263)
Proceeds from debt	50,000		—
Payments of debt issuance costs	(840)		—
Payments of deferred offering costs	(75)		—
Net cash used in financing activities	(56,468)		(37,900)
Net increase in cash and cash equivalents	1,825		41,780
Cash and cash equivalents, beginning of period	80,441		55,780
Cash and cash equivalents, end of period	$	82,266	$	97,560

7

MERIDIANLINK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2024		2023
Supplemental disclosures of cash flow information:
Cash paid for interest	$	28,988	$	27,498
Cash paid for income taxes	455		2,610
Non-cash investing and financing activities:
Shares withheld with respect to net settlement of restricted stock units	2,910		1,403
Purchase price allocation adjustment for Beanstalk Networks LLC acquisition	—		757
Excise taxes payable included in repurchases of common stock	704		162
Share-based compensation expense included in capitalized software additions	206		219
Purchase price allocation adjustment related to income tax effects for StreetShares acquisition	—		245
Purchases of property and equipment included in accounts payable and accrued liabilities	46		611
Vesting of restricted stock awards and restricted stock units	2		4

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

8

MERIDIANLINK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Organization and Description of Business

MeridianLink, Inc., and its wholly-owned subsidiaries, (collectively, the “Company”) provides secure, cloud-based digital solutions that transform the ways in which traditional and emerging financial services providers engage with account holders and end users. The Company sells its solutions to financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies. The Company delivers its solutions to the substantial majority of its customers using a software-as-a-service (“SaaS”) model under which its customers pay subscription fees for the use of the Company’s solutions. The Company is headquartered in Costa Mesa, California.

Note 2 – Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

The interim condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations and stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed consolidated financial position as of September 30, 2024, its condensed consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 and its cash flows for the nine months ended September 30, 2024 and 2023. The financial data and the other financial information disclosed in the notes to the condensed consolidated financial statements related to the three and nine months ended September 30, 2024 and 2023 and as of September 30, 2024, are also unaudited. The condensed consolidated balance sheet as of December 31, 2023, included herein, and financial information as of December 31, 2023, disclosed in the notes to the condensed consolidated financial statements was derived from the audited consolidated financial statements as of that date.

The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on March 12, 2024 (“2023 Annual Report on Form 10-K”).

Operating and Reportable Segment

The Company operates and manages its business and financial information on a consolidated basis for the purposes of evaluating financial performance and the allocation of resources. The Company's management determined that it operates in one operating and reportable segment that is focused exclusively on providing cloud-based digital solutions in the United States. In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the information provided to the CODM, and how that information is used to make operating decisions, allocate resources, and assess performance. The Company's CODM is the chief executive officer. The results of operations provided to and analyzed by the CODM are at the consolidated level, and accordingly, key resource decisions and assessment of performance are performed at the consolidated level. The Company assesses its determination of operating segments at least annually.

9

MERIDIANLINK, INC.

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

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses. Certain items subject to such estimates include the fair value of acquired intangible assets; the capitalization of software development costs; the useful lives of long-lived intangible assets; impairment of goodwill and long-lived assets; and income taxes, including the valuation allowance for deferred income taxes. In accordance with GAAP, management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantly from those estimates.

Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2, “Significant Accounting Policies” in the Company’s 2023 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies described in the Company’s 2023 Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes.

Accounting Pronouncements Not Yet Adopted

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and has elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies.

ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”

Accounting Standard Update (“ASU”) 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company for annual periods beginning after December 15, 2025, on a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its condensed consolidated financial statements and related disclosures.

ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”

ASU 2023-07 requires enhanced disclosures about significant segment expenses and other segment items and requires companies to disclose all annual disclosures about segments in interim periods. The new standard also permits companies to disclose more than one measure of segment profit or loss, requires disclosure of the title and position of the CODM, and requires companies with a single reportable segment to provide all disclosures required by Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and companies are required to apply the ASU retrospectively to all periods presented. The Company is currently evaluating the impact that adoption of this standard will have on its condensed consolidated financial statements and related disclosures.

10

MERIDIANLINK, INC.

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

Note 3 – Revenue Recognition

Disaggregation of Revenue

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Lending Software Solutions	$	63,005	$	58,949	$	185,552	$	172,728
Data Verification Software Solutions	17,364		17,539		51,309		56,310
Total	$	80,369	$	76,488	$	236,861	$	229,038

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Subscription fees	$	67,344	$	64,613	$	199,202	$	194,788
Professional services	10,146		8,706		28,715		26,143
Other	2,879		3,169		8,944		8,107
Total	$	80,369	$	76,488	$	236,861	$	229,038

Contract Balances

The following table presents amounts related to customer contract-related arrangements, which are included on the condensed consolidated balance sheets as follows (in thousands):

	As of September 30,		As of January 1,		As of September 30,		As of January 1,
	2024		2024		2023		2023
Accounts receivable, net	$	36,893	$	30,314	$	31,751	$	29,010
Unbilled receivables	1,975		2,098		2,245		3,895
Accounts receivable, net	$	38,868	$	32,412	$	33,996	$	32,905
Deferred revenue, current	$	29,767	$	17,224	$	26,694	$	16,945
Long-term deferred revenue	$	160	$	792	$	692	$	1,141

Unbilled receivables primarily result from revenue being recognized when or as control of a solution or service is transferred to the customer, but where invoicing is contingent upon the completion of other performance obligations or where the contract provides that payment timing differs from the provisioning of services. Unbilled receivables and accounts receivable, net of the allowance for expected credit losses, are included within accounts receivable, net on the Company’s consolidated balance sheets. Accounts receivable and unbilled receivables will increase or decrease based on the timing of invoices, customer payments, and recognition of revenue.

Deferred Revenue

The balance of deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Significant changes in our deferred revenue balances during the nine months ended September 30, 2024 and 2023 were as follows (in thousands):

11

MERIDIANLINK, INC.

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

	As of September 30,
	2024		2023
Deferred revenue, beginning balance	$	18,016	$	18,086
Billing of transaction consideration	248,772		238,338
Revenue recognized	(236,861)		(229,038)
Deferred revenue, ending balance	$	29,927	$	27,386
Deferred revenue, current	$	29,767	$	26,694
Long-term deferred revenue	160		692
Total deferred revenue	$	29,927	$	27,386

Accounts Receivable and Allowance for Credit Losses

A rollforward of the Company’s allowance for expected credit losses balance for the nine months ended September 30, 2024, and 2023, is as follows (in thousands):

	As of September 30,
	2024		2023
Allowance for expected credit losses, beginning balance	$	514	$	165
Provision for expected credit losses	604		627
Write offs, net	(456)		(375)
Allowance for expected credit losses, ending balance	$	662	$	417

Assets Recognized from Costs to Obtain a Contract with a Customer

Current costs for assets recognized from costs to obtain a contract with a customer are included in prepaid expenses and other current assets, and non-current costs are included in other assets on the accompanying condensed consolidated balance sheets. The following table represents the changes in assets recognized from costs to obtain a contract with a customer, or contract cost assets (in thousands):

	As of September 30,
	2024		2023
Beginning balance	$	8,018	$	6,539
Additions	3,927		3,570
Amortization	(3,011)		(2,423)
Ending balance	$	8,934	$	7,686
Contract cost assets, current	$	4,111	$	3,642
Contract cost assets, noncurrent	4,823		4,044
Total contract cost assets	$	8,934	$	7,686

There was no impairment of contract cost assets during the three and nine months ended September 30, 2024, and 2023.

12

MERIDIANLINK, INC.

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

Note 4 – Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	As of September 30,		As of December 31,
	2024		2023
Prepaid expenses	$	7,422	$	5,762
Contract cost assets, current	4,111		3,782
Income tax receivable	322		961
Other	454		1,069
Total prepaid expenses and other current assets	$	12,309	$	11,574

Cloud Computing Arrangements

Current costs for capitalized deferred implementation costs are included in prepaid expenses and other current assets, and non-current costs are included in other assets on the accompanying condensed consolidated balance sheets. Capitalized deferred implementation costs for cloud computing arrangements consisted of the following (in thousands):

	As of September 30,		As of December 31,
	2024		2023
Capitalized deferred implementation costs	$	2,299	$	1,779
Accumulated amortization	(280)		(208)
Capitalized deferred implementation costs, net	$	2,019	$	1,571

Amortization expense for capitalized deferred implementation costs was immaterial for the three and nine months ended September 30, 2024, and 2023.

Property and Equipment, Net

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

	As of September 30,		As of December 31,
	2024		2023
Computer equipment and software	$	8,055	$	8,794
Leasehold improvements	2,424		2,732
Office equipment and furniture	990		990
Total	11,469		12,516
Accumulated depreciation	(9,107)		(9,179)
Property and equipment, net	$	2,362	$	3,337

Depreciation expense amounted to $0.3 million, and $0.5 million for the three months ended September 30, 2024 and 2023, respectively. Depreciation expense amounted to $1.1 million, and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

13

MERIDIANLINK, INC.

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

Intangible Assets, Net

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

	As of September 30, 2024
	Gross Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	343,300	$	(192,125)	$	151,175
Developed technology	96,400		(60,457)		35,943
Trademarks	24,975		(14,660)		10,315
Non-competition agreements	5,500		(2,478)		3,022
Capitalized software	34,686		(21,016)		13,670
Total intangible assets, net	$	504,861	$	(290,736)	$	214,125

	As of December 31, 2023
	Gross Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	343,300	$	(166,485)	$	176,815
Developed technology	96,400		(52,039)		44,361
Trademarks	24,975		(12,803)		12,172
Non-competition agreements	5,500		(1,743)		3,757
Capitalized software	28,997		(15,042)		13,955
Total intangible assets, net	$	499,172	$	(248,112)	$	251,060

For the three months ended September 30, 2024 and 2023, the Company capitalized $1.9 million and $2.5 million, respectively, related to internally developed software. For the nine months ended September 30, 2024 and 2023, the Company capitalized $5.7 million and $7.2 million, respectively, related to internally developed software costs.

The weighted average remaining useful lives for intangible assets as of September 30, 2024, were as follows:

	Weighted Average Remaining Useful Life (in years)
Customer relationships	5
Developed technology	6
Trademarks	4
Non-competition agreements	3
Capitalized software	2

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of revenues	$	4,860	$	4,524	$	14,392	$	13,488
General and administrative expense	9,407		9,419		28,232		28,420
Total amortization expense	$	14,267	$	13,943	$	42,624	$	41,908

14

MERIDIANLINK, INC.

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

The estimated future amortization of intangible assets as of September 30, 2024, was as follows (in thousands):

Years ending December 31,
2024 (remaining three months)	$	14,270
2025	51,948
2026	46,133
2027	42,997
2028	24,911
Thereafter	33,866
Total amortization expense	$	214,125

No impairment of long-lived assets was recorded during the three and nine months ended September 30, 2024 or 2023.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	As of September 30,		As of December 31,
	2024		2023
Accrued payroll and payroll-related expenses	$	8,717	$	9,501
Accrued operating costs	5,624		3,655
Accrued bonuses	6,006		6,424
Sales tax liabilities from acquisitions	3,383		3,383
Accrued costs of revenues	3,139		2,003
Customer deposits	760		1,302
Excise taxes payable	1,082		379
Operating lease liabilities – current	422		773
Other sales tax liabilities	504		404
User conference accrual	47		1,073
Other accrued liabilities	2,230		1,776
Total accrued liabilities	$	31,914	$	30,673

Note 5 – Commitments and Contingencies

Legal Matters

The Company is, and from time to time may be, involved in legal proceedings and claims arising out of the Company’s operations in the ordinary course of business. The Company accrues estimates for resolution of legal proceedings and other contingencies when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss is reasonably estimable. Management is not currently aware of any legal proceedings or claims against it that could have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

During the nine months ended September 30, 2024, the Company incurred estimated settlement charges amounting to $1.5 million related to the expected settlements of class action litigation claims. These matters became probable and estimable during the three months ended June 30, 2024, which is the same period that settlements regarding these matters were proposed. In July 2024, settlement was finalized and paid for one of the claims equal to the amount that was accrued as of June 30, 2024. As of September 30, 2024, the Company does not anticipate that final payment of the remaining estimated claim will be materially different from the estimate accrued.

15

MERIDIANLINK, INC.

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

Other Contractual Commitments

The Company’s contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription arrangements used to support operations at the enterprise level. Future minimum payments under the Company’s non-cancelable purchase commitments as of September 30, 2024, are as follows (in thousands):

	Contractual Commitments
Years ending December 31,
2024 (remaining three months)	$	1,095
2025	4,831
2026	4,716
2027	3,141
Thereafter	—
Total	$	13,783

Note 6 – Debt

Debt consisted of the following (in thousands):

	As of September 30,		As of December 31,
	2024		2023
2021 Term Loan	$	473,919	$	427,388
Debt issuance costs	(4,009)		(3,842)
Total debt, net	469,910		423,546
Less: Current portion of debt
2021 Term Loan	4,763		4,350
Debt issuance costs	(990)		(808)
Total current portion of debt, net	3,773		3,542
Total non-current portion of debt, net	$	466,137	$	420,004

Amortization of debt issuance costs was $0.3 million and $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and $0.7 million and $0.9 million for the nine months ended September 30, 2024, and 2023, respectively.

Total interest expense, excluding amortization of debt issuance costs, was $9.9 million and $9.6 million for the three months ended September 30, 2024 and 2023, respectively, and $28.8 million and $27.4 million for the nine months ended September 30, 2024 and 2023, respectively.

2021 Credit Agreement

The credit agreement dated as of November 10, 2021, as amended (the “2021 Credit Agreement”), provides for a term loan facility (the “2021 Term Loan”) with an aggregate principal amount of $476.3 million and a revolving credit facility (the “2021 Revolving Credit Facility”) in an aggregate principal amount of $50.0 million, inclusive of a $10.0 million letter of credit sub-facility. The 2021 Term Loan and 2021 Revolving Credit Facility mature on November 10, 2028, and November 10, 2026, respectively. The Company has not drawn on the 2021 Revolving Credit Facility as of September 30, 2024.

16

MERIDIANLINK, INC.

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

During the second quarter of 2023, the Company entered into a conforming changes amendment to the 2021 Credit Agreement that established the Secure Overnight Financing Rate (“SOFR”) as the benchmark rate used in the definition of the Eurocurrency Rate for its 2021 Term Loan and 2021 Revolving Credit Facility. Under the terms of the conforming changes amendment, SOFR will be used as the benchmark rate for interest periods beginning on or after June 30, 2023. The interest rate under the conforming changes amendment was equal to SOFR plus 3.00% initial margin and 0.26% spread adjustment. In connection with the amendment, the Company incurred $0.1 million of financing fees that was expensed during the nine months ended September 30, 2023.

On May 15, 2024, the Company entered into a Refinancing Amendment and First Amendment to the 2021 Credit Agreement (the “Amendment”). Pursuant to the Amendment, the Company, among other things, lowered the interest rate on its 2021 Term Loan from SOFR plus 3.00% initial margin per annum to SOFR plus 2.75% per annum, and removed the 0.26% spread adjustment that was previously required under the conforming changes amendment discussed above. The Amendment also increased the aggregate principal amount of the 2021 Term Loan by $50.0 million, which the Company drew down in connection with the Amendment, increasing the outstanding principal amount of the 2021 Term Loan to $476.3 million. The Company accounted for the Amendment as a debt modification. The Company incurred $1.3 million financing fees related to the Amendment, of which $0.8 million was deferred and recorded as a reduction to the debt balance, and $0.5 million was expensed as incurred in general and administrative expense on the Company’s condensed consolidated statements of operations.

The obligations under the 2021 Credit Agreement are secured by a lien on substantially all tangible and intangible property of the Company, subject to customary exceptions, limitations, and exclusions from the collateral.

The 2021 Credit Agreement contains customary affirmative covenants, negative covenants and events of default, including covenants and restrictions that, among other things, require the Company to satisfy a financial covenant, and restricts or limits the ability of the Company to grant or incur liens, incur additional indebtedness, enter into joint ventures or partnerships, engage in mergers and acquisitions, engage in asset sales, and declare dividends on its capital stock, subject in each case to certain customary exceptions. A failure to comply with covenants could permit the lenders to declare the 2021 Term Loan, and any then outstanding borrowings on the 2021 Revolving Credit Facility, together with accrued interest and fees thereon, to be immediately due and payable. The Company was in compliance with all financial covenants of the 2021 Credit Agreement at September 30, 2024.

2021 Term Loan

Borrowings under the 2021 Term Loan bear interest at a variable rate, elected by the Company, equal to the Base Rate (as defined in the 2021 Credit Agreement) or Term SOFR (as defined in the 2021 Credit Agreement), plus, an initial margin based on the Company’s Consolidated First Lien Net Leverage Ratio (as defined by the 2021 Credit Agreement), which was 2.75% at September 30, 2024. The Company is required to make quarterly principal payments equal to 0.25% of the principal, with the remainder due at maturity.

In connection with the Amendment, debt issuance costs of $4.4 million were included as a reduction of the debt balance on the condensed consolidated balance sheets and are amortized into interest expense over the contractual life of the loans using the effective interest method. Included in the debt issuance costs were $0.8 million incurred in connection with the Amendment, and $3.6 million carried forward from the Company’s original 2021 Term Loan. The Company recognized $0.3 million and $0.2 million of amortization of debt issuance costs for the 2021 Term Loan during the three months ended September 30, 2024 and 2023, respectively, and $0.7 million and $0.8 million during the nine months ended September 30, 2024 and 2023, respectively.

The effective interest rate on the 2021 Term Loan was 7.7% as of September 30, 2024.

17

MERIDIANLINK, INC.

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

2021 Revolving Credit Facility

Borrowings under the 2021 Revolving Credit Facility bear interest, at the election of the Company, at a rate equal to the Base Rate (as defined in the 2021 Credit Agreement) or Term SOFR (as defined in the 2021 Credit Agreement), plus, in each case, the Applicable Rate (as defined in the 2021 Credit Agreement), which shall vary based on the Company’s Consolidated First Lien Net Leverage Ratio.

In connection with the 2021 Revolving Credit Facility, the Company incurred $0.5 million in debt issuance costs. Expenses associated with the issuance of the revolving credit facility are presented in the accompanying condensed consolidated balance sheets in prepaid expenses and other current assets and other assets, and are amortized to interest expense over the life of the 2021 Revolving Credit Facility using the straight-line method. The remaining unamortized debt issuance costs were $0.2 million and $0.3 million as of September 30, 2024, and December 31, 2023, respectively.

The 2021 Revolving Credit Facility also requires a quarterly commitment fee based on the Company’s consolidated first lien net leverage ratio. As of September 30, 2024, the applicable rate was 0.5%, which was applied against the $50.0 million unused revolving credit facility balance.

Future Principal Payments

Future principal payments of debt as of September 30, 2024, were as follows (in thousands):

Years ending December 31,
2024 (remaining three months)	$	1,191
2025	4,763
2026	4,763
2027	4,763
2028	458,439
Total	$	473,919

Note 7 - Stockholders’ Equity

Stock Repurchase Programs

In May 2022, the Company’s board of directors authorized a stock repurchase program to acquire up to $75.0 million of the Company’s common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares (the “2022 Stock Repurchase Program”). In January 2024, the Company’s board of directors authorized a stock repurchase program to acquire up to $125.0 million of the Company’s common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares (the “2024 Stock Repurchase Program”).

The manner, timing, and actual number of shares repurchased under the programs will depend on a variety of factors, including price, working capital needs, general business and market conditions, regulatory requirements, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934. The repurchase programs may be commenced, suspended, or terminated at any time by the Company at its discretion without prior notice.

Approximately $44.4 million (including excise taxes) of the 2024 Stock Repurchase Program was used for the stock repurchase in connection with the February Secondary Offering (defined below).

For both the 2022 Stock Repurchase Program and 2024 Stock Repurchase Program, the Company retires the repurchased shares, which automatically return to the status of authorized but unissued shares of common stock. The cost of the repurchased shares, including commissions, fees, and excise taxes are recorded as an adjustment to accumulated deficit on the Company’s condensed consolidated balance sheets and statements of stockholders’ equity.

18

MERIDIANLINK, INC.

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

Secondary Offerings by Selling Stockholders and Related Common Stock Repurchase

On September 30, 2024, the Company completed an underwritten secondary offering for the sale of 6,000,000 shares of common stock by certain funds managed by Thoma Bravo, L.P., at an offering price of $21.05 per share, (the “September Secondary Offering.”) In connection with the September Secondary Offering, the selling stockholders granted the underwriter a 30-day option to purchase up to an additional 900,000 shares of common stock from the selling stockholders at the offering price of $21.05 per share. The underwriter partially exercised its option to purchase an additional 650,000 shares of common stock on October 18, 2024, and the remaining portion of the option expired unexercised on October 26, 2024. The Company did not receive any proceeds from the sale of its common stock by the selling stockholders in the September Secondary Offering. During the three months ended September 30, 2024, the Company incurred costs of $0.7 million in connection with the September Secondary Offering. These costs are included within general and administrative expenses on the Company’s condensed consolidated statements of operations.

On February 9, 2024, the Company completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of its existing stockholders, at an offering price of $19.00 per share (the “February Secondary Offering”). The selling stockholders also granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions. The underwriters did not exercise their option to purchase any additional shares before the expiration of the 30-day window. The Company did not receive any proceeds from the sale of its common stock by the selling stockholders in the February Secondary Offering. During the nine months ended September 30, 2024, the Company incurred costs of $1.4 million in connection with the February Secondary Offering. These costs are included within general and administrative expenses on the Company’s condensed consolidated statements of operations.

The September and February Secondary Offerings were made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276336), which was filed with the Securities and Exchange Commission on December 29, 2023 and became effective on January 8, 2024.

On February 9, 2024, in connection with the February Secondary Offering and pursuant to the 2024 Repurchase Program, the Company purchased 2,406,015 shares of its common stock from the underwriters at a price per share equal to $18.2875, which is equal to the per share price at which the underwriters purchased the shares from the selling stockholders in the February Secondary Offering, resulting in an aggregate purchase price of approximately $44.4 million (including excise taxes).

Stock Repurchase Activity

A summary of repurchased share activity during the three and nine months ended September 30, 2024 and 2023, is as follows (in thousands except share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Total number of shares repurchased	1,369,004		1,845,708		2,922,898		2,182,215
Total cost of shares repurchased, including commissions, fees, and excise taxes	$	31,258	$	30,677	$	105,551	$	35,822

As of September 30, 2024, there was a total of $29.5 million remaining for repurchase under the Company’s stock repurchase programs.

19

MERIDIANLINK, INC.

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

Note 8 – Share-based Compensation

2021 Stock Option and Incentive Plan

The 2021 Stock Option and Incentive Plan (the “2021 Plan”) was adopted by the board of directors and approved by the Company’s stockholders following the corporate conversion effected in connection with the Company’s initial public offering and became effective as of July 26, 2021. The 2021 Plan replaced both the Company’s 2019 Equity Option Plan (the “2019 Plan”) and the Project Angel Parent, LLC Equity Plan (the “2018 Plan”). Outstanding options to purchase Class B Units granted under the 2019 Plan were converted into options to purchase shares of common stock, and all outstanding Carried Equity Units granted under the 2018 Plan were converted into restricted stock awards (“RSAs”), both of which have been granted under the 2021 Plan.

The Company had initially reserved 13,171,588 shares of its common stock for the issuance of awards under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase on January 1, 2022, and each January 1 thereafter, by 5% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. The number of shares reserved under the 2021 Plan is subject to adjustment in the event of a stock split, stock dividend, or other change in the Company’s capitalization.

The 2021 Plan provides flexibility to the Company’s compensation committee to use various equity-based incentive awards as compensation tools to motivate the Company’s workforce. The incentive awards that may be granted under the 2021 Plan include, but are not limited to, options to purchase common stock, stock appreciation rights, restricted shares of common stock, restricted stock units, and cash bonuses.

Stock Options

A summary of stock option activity during the nine months ended September 30, 2024, is as follows (in thousands, except options, price per option, and term amounts):

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contract Term (in years)	Aggregate Intrinsic Value
Outstanding – January 1, 2024	3,976,372	$	12.53	6.68	$	49,670
Granted	—	—
Exercised	(343,742)	13.76
Forfeited	(252,160)	20.30
Outstanding – September 30, 2024	3,380,470	$	11.82	5.52	$	33,580
Vested and expected to vest in the future at September 30, 2024	3,380,470	11.82		5.52	33,580
Exercisable at September 30, 2024	3,029,080	$	10.76	5.33	$	32,877

The total fair value of options that vested during the three months ended September 30, 2024 and 2023 was $1.1 million and $1.4 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $3.5 million and $5.1 million, respectively.

The total intrinsic value of options exercised during the three months ended September 30, 2024 and 2023 was $1.2 million and $1.5 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $2.8 million and $2.9 million, respectively.

Share-based compensation expense related to time-based and performance-based stock options for the three months ended September 30, 2024 and 2023 was $0.8 million and $1.3 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $3.1 million and $4.1 million, respectively. During the three months ended September 30, 2024, the performance-based stock options were forfeited and none remain outstanding as of September 30, 2024.

20

MERIDIANLINK, INC.

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

As of September 30, 2024, there was $3.1 million of unrecognized share-based compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 1.2 years.

Restricted Stock Units

A summary of restricted stock unit (“RSU”) activity during the nine months ended September 30, 2024, is as follows:

	Number of RSUs	Weighted Average Grant Date Fair Value
Non-vested – January 1, 2024	4,919,744	$	17.19
Granted	4,863,095	19.47
Vested	(1,716,092)	17.49
Forfeited	(995,579)	17.32
Non-vested – September 30, 2024	7,071,168	18.67

Each RSU represents the right to receive one share of the Company’s common stock upon vesting and settlement. As of September 30, 2024, 7,071,168 RSUs are expected to vest. Share-based compensation expense related to RSUs for the three months ended September 30, 2024 and 2023 was $10.9 million and $7.0 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $28.9 million and $17.8 million, respectively.

As of September 30, 2024, there was $118.8 million of unrecognized share-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 2.89 years.

In August 2024, the Company granted 296,544 performance-based restricted stock units (“PSUs”) under the 2021 plan, which have a requisite service period through December 31, 2024. The fair value of the PSUs on the grant date was $6.6 million. Each PSU shall relate to one share of common stock upon vesting and settlement. The number of shares that may be earned is based on achievement of certain financial targets related to the Company’s fiscal year ending December 31, 2024, and such shares will vest only upon board-level confirmation of achievement. The PSUs are subject to forfeiture if the grantee’s employment terminates prior to the completion of the requite service period, or if the performance measures are not met as of December 31, 2024. The fair value of the share-based compensation for the PSUs was measured based on the closing share price of the Company’s common stock at the date of grant. Share-based compensation is recognized ratably over the period between the grant date and December 31, 2024, so long as the performance measures are probable of being achieved.

The Company recognized $2.5 million in share-based compensation expense related to PSUs during both the three and nine months ended September 30, 2024, as the performance measures were probable of being achieved during the relevant periods, and therefore were included in share-based compensation expense for such periods.

As of September 30, 2024 there was $4.1 million of unrecognized share-based compensation expenses related to PSUs, which is expected to be recognized over a period of 0.25 years.

Employee Stock Purchase Program

As of September 30, 2024, the Company has issued 69,899 shares of common stock pursuant to the 2021 Employee Stock Purchase Plan under its employee stock purchase program (“ESPP”). As of September 30, 2024, there was $0.1 million of unrecognized share-based compensation related to the ESPP that is expected to be recognized over the remaining term of the current offering period.

Share-based compensation expense related to the ESPP for the three months ended September 30, 2024 and 2023 was $0.2 million and $0.2 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $0.5 million and $0.5 million, respectively.

21

MERIDIANLINK, INC.

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

Share-Based Compensation

Share-based compensation for share-based awards granted to participants has been recorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of revenues	$	1,252	$	910	$	3,397	$	2,919
General and administrative	8,502		4,443		19,687		11,938
Research and development (1)	2,630		1,709		6,663		5,368
Sales and marketing	1,870		1,260		4,943		2,654
Restructuring related costs (2)	—		—		(7)		(663)
Total share-based compensation expense	$	14,254	$	8,322	$	34,683	$	22,216
______________

(1)Net of $0.1 million, and $0.1 million additions to capitalized software on the Company’s condensed consolidated balance sheets during the three months ended September 30, 2024 and 2023, respectively, and $0.2 million and $0.2 million during the nine months ended September 30, 2024 and 2023, respectively.

(2)Relates to unvested stock compensation that was forfeited or accelerated as part of the 2024 Realignment Plan and 2023 Restructuring Plan. See Note 12, “Restructuring.”

Note 9 – Income Taxes

In accordance with applicable accounting guidance, the Company is required to use an estimated annual effective tax rate to compute its tax provision during an interim period. However, there is an exception to the use of this method when a reliable estimate of its ordinary income (loss) or related tax (benefit) for the year cannot be determined. In that case, an entity may report the actual tax or benefit applicable when annual income cannot be estimated, as a discrete item in the interim period. This exception was used in determining the tax provision for the three and nine months ended September 30, 2024.

Using the discrete method for the current year, and the annual effective tax rate method for the prior year, the Company’s provision for income taxes reflected an effective tax rate of (13.1)% and 27.9% for the three months ended September 30, 2024 and 2023, respectively, and (6.1)% and 22.7% for the nine months ended September 30, 2024 and 2023, respectively.

During the three and nine months ended September 30, 2024, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to research and development credits, state income taxes, and permanent favorable differences related to share-based compensation expense; partially offset by certain employee remuneration under section 162(m) of the Internal Revenue Code, other expected permanent differences, and changes in the valuation allowance.

During the three and nine months ended September 30, 2023, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to research and development credits, state income taxes, permanent unfavorable differences related to share-based compensation expense, certain employee remuneration under section 162(m) of the Internal Revenue Code, recognition of U.S. state net operating losses from prior acquisitions, and other expected permanent differences.

The Company regularly assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” realization standard. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the past and current trend in volatility in the Company’s business operating environment, which has impacted the Company’s current ability and expectation to generate sufficient future taxable income to fully realize its deferred tax assets, the Company continues to maintain that it is more likely that it would not be able to utilize all of the deferred tax assets as of September 30, 2024, and December 31, 2023, and, therefore, has a partial valuation allowance against its deferred tax assets. The Company’s valuation allowance was $34.6 million and $29.4 million as of September 30, 2024, and December 31, 2023, respectively.

22

MERIDIANLINK, INC.

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

The Company has gross unrecognized tax benefits with respect to research and development credits of $4.0 million as of September 30, 2024, and $3.5 million as of December 31, 2023. The Company has recorded an immaterial amount of penalties and interest to income tax expense as the credits have started to be utilized in certain jurisdictions, however almost all credits have no penalties or interest recorded as the credits have not yet been fully utilized.

Note 10 – Related Party Transactions

In the course of its business operations, the Company maintains agreements for services from companies in which certain investment funds advised by a significant stockholder hold an investment. These services primarily relate to vehicle lookup data through an API integrated with many of the Company's products and costs related to financial and business planning software, among others. These costs are recorded as cost of sales or operating expenses on the Company’s condensed consolidated statements of operations, depending on the nature of the agreement or transactions. The Company also has compensation agreements with its directors and officers, which are recorded as general and administrative expenses on the Company’s condensed consolidated statements of operations. Costs and revenue associated with these agreements and transactions are considered to be related party transactions.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of revenues	$	456	$	416	$	1,321	$	1,183
General and administrative	(76)		154		670		556
Research and development	27		57		79		284
Sales and marketing	—		—		—		1
Total related party expenses	$	407	$	627	$	2,070	$	2,024

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

	As of September 30,		As of December 31,
	2024		2023
Prepaid expenses and other current assets	$	105	$	38
Total current assets	$	105	$	38
Accounts payable	$	312	$	110
Accrued liabilities	323		243
Total current liabilities	$	635	$	353

Under the terms of these related-party transactions, all amounts incurred and recognized are expected to be settled within one year from the date of the accompanying consolidated balance sheets.

During the three months ended September 30, 2023, the Company entered into a privately-negotiated transaction with a stockholder to repurchase 1,525,027 shares of the Company’s common stock at a price per share of $16.43, for an aggregate purchase price of approximately $25.0 million. This represented a 5% discount on the Company’s 7-day moving average price on September 7, 2023. The repurchase settled on September 11, 2023, and was completed pursuant to the Company’s previously announced stock repurchase program authorized in May 2022. There were no similar related party transactions during the three or nine months ended September 30, 2024.

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MERIDIANLINK, INC.

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

Note 11 – Net Loss Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Basic and diluted net loss per share
Numerator:
Net loss attributable to common stockholders	$	(7,051)	$	(2,069)	$	(22,027)	$	(12,965)
Denominator:
Weighted average common stock outstanding:
Basic	75,631,670		81,073,915		76,495,022		80,883,310
Diluted	75,631,670		81,073,915		76,495,022		80,883,310
Net loss per share:
Basic	$	(0.09)	$	(0.03)	$	(0.29)	$	(0.16)
Diluted	$	(0.09)	$	(0.03)	$	(0.29)	$	(0.16)

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

	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Weighted average shares outstanding for basic loss per share	75,631,670	81,073,915	76,495,022	80,883,310
Effect of dilutive securities:
Options outstanding, unexercised	—	—	—	—
RSUs unvested	—	—	—	—
PSUs unvested	—	—	—	—
Purchase rights committed under the ESPP	—	—	—	—
Weighted average shares outstanding for diluted loss per share	75,631,670	81,073,915	76,495,022	80,883,310

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

	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Options outstanding, unexercised	3,380,470	3,080,624	3,380,470	3,080,624
RSUs, unvested	7,071,168	5,116,305	7,071,168	5,116,305
PSUs, unvested	296,544	—	296,544	—
Purchase rights committed under the ESPP	73,209	78,828	74,060	75,701
Total	10,821,391	8,275,757	10,822,242	8,272,630

Note 12 – Restructuring Activities

2024 Realignment Plan

In January 2024, the Company’s board of directors authorized an organizational realignment plan (the “2024 Realignment Plan”) that is designed to manage operating costs, enable efficient delivery on business objectives, and allow for growth in areas of strategic importance. The 2024 Realignment Plan included a reduction of the Company’s then-current workforce by approximately 12%. The Company completed the 2024 Realignment Plan in the second quarter of 2024.

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MERIDIANLINK, INC.

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

Restructuring charges of $4.2 million for severance and related costs, net of $0.0 million previously vested share-based compensation, net of acceleration, were recognized during the nine months ended September 30, 2024, and none during the three months ended September 30, 2024. These charges are reflected in restructuring related costs on the Company’s condensed consolidated statements of operations.

A rollforward of the Company’s restructuring reserve balance for the nine months ended September 30, 2024 is as follows (in thousands):

	As of September 30,
	2024
Beginning balance	$	—
Restructuring related costs	4,179
Payments	(4,030)
Ending balance	$	149

2023 Restructuring Plan

In February 2023, the Company’s board of directors authorized a restructuring plan (the “2023 Restructuring Plan”) that was designed to consolidate the Company’s functions and investments to prioritize customer-centric areas of the Company’s organization, align teams with the Company’s highest business priorities, and improve efficiencies. The Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 11%. The Company completed the 2023 Restructuring Plan in the second quarter of 2023.

Restructuring charges of $3.6 million for severance and related costs, net of $0.7 million previously vested share-based compensation, were recognized during the nine months ended September 30, 2023, and none during the three months ended September 30, 2023. These charges are reflected in restructuring-related costs on the Company’s condensed consolidated statements of operations.

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

	As of September 30,
	2023
Beginning balance	$	—
Restructuring related costs	3,621
Payments	(3,621)
Ending balance	$	—

Note 13 – Subsequent Events

In connection with the September Secondary Offering, the underwriter completed the purchase of an additional 650,000 shares of common stock from the selling stockholders pursuant to a partial exercise of its option to purchase up to an additional 900,000 shares of the Company’s common stock from the selling stockholders, as described in Note 7 – Stockholders’ Equity. The remaining portion of the option expired unexercised on October 26, 2024.

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Special Note about Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2023, or our 2023 Annual Report on Form 10-K, and our other filings with the Securities and Exchange Commission, or SEC. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

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

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

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

•our ability to develop and protect our brand;

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

•the concentration of our customer base in the financial institution industry, and spending by financial institutions on cloud-based technology;

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

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

•our ability to sell our applications and expand internationally;

•our ability to comply with laws and regulations;

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

•the impact of global financial, economic, public health, and political events on our industry, business, and results of operations;

•our ability to successfully identify, acquire, and integrate complementary businesses and technologies, and our expectations regarding the expected impact of such acquisitions on our business;

•our ability to hire and retain key members of management and necessary qualified employees to grow our business and expand our operations;

•our ability to maintain effective internal control over financial reporting and disclosure controls and procedures, including our ability to remediate the identified material weakness in our internal control over financial reporting;

•our stock repurchase programs, including the execution and amount of repurchases and financing sources for any such repurchases;

•the execution of restructuring or realignment plans, including expected or contemplated associated timing, benefits, and costs;

•the status of litigation matters, including expected or contemplated settlements, associated timing, and estimated fees and expenses;

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

•economic and industry trends, including the impact of rising inflation rates on our customers and consumers generally;

•seasonal fluctuations in consumer borrowing trends and impact of changes in interest rates;

•our ability to adequately protect our intellectual property; and

•our ability to service our debt obligations, including the effects of amendments to our debt facility and the amount of expected interest expense.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

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The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

In this Quarterly Report on Form 10-Q, the terms “MeridianLink,” “we,” “us,” and “our” refer to MeridianLink, Inc. and its subsidiaries, unless the context indicates otherwise.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our 2023 Annual Report on Form 10-K. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Our fiscal year ends on December 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, 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 secure, cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and credit reporting agencies, or CRAs. Financial institutions are undergoing digital transformation as they seek to transition business models, create new revenue streams, and increase customer engagement. We support our customers’ digital transformations by helping them create a superior consumer experience with our mission-critical loan origination system, or LOS, digital lending platform, data verification solutions, and data analytics. Our solutions allow our customers to meet their clients’ financial needs across the institution, which enables improved client acquisition and retention. Additionally, our solutions allow our customers to operate more efficiently by enabling automated loan decisioning and enhanced risk management.

The effective delivery and management of secure and advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel, and expertise. We provide digital solutions that are designed to be highly configurable, scalable, and adaptable to the specific needs of our customers. We design and develop our solutions with an open platform approach intended to provide comprehensive integration among our solution offerings and our customers’ internal systems and third-party systems. Our multi-product platform, MeridianLink One, can be tailored to meet the needs of our customers as they digitally transform their organizations and adapt to changing business and consumer demands. Moreover, our expert consultants offer strategic guidance and customized solutions through our modular platform to help our customers more quickly reduce costs and increase revenue, efficiency, and satisfaction of their clients.

Our solutions are central to the financial institution’s technology ecosystem and help drive additional business volume for our customers both directly and indirectly through our Partner Marketplace. Our omni-channel borrowing experience seamlessly integrates all the touch points a borrower may have with the financial institution (remote via the web or an app, in person at a branch, or telephonically through an operator). In addition to our streamlined workflow, which has been refined over twenty years with input from across our customer base, our Partner Marketplace provides our customers optional integrations, the collective capabilities of which we believe further distinguish our solution from that of competitors.

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

As a result of this pricing approach, our revenues 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.

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

We seek to strengthen and grow our customer relationships by providing consistent, high-quality implementations and customer support services, which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We have migrated our solutions onto the public cloud, which helps to extend our innovation and security posture. We believe that our increased focus on our go-to-market strategy and strategic partnerships will drive incremental opportunities for revenue and accelerate customer cross-sell growth.

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

We cater largely to financial institutions such as community banks and credit unions with assets under management between $100 million and $10 billion. For these institutions, lending is often the single most important revenue driver with approximately 70% of revenue for the full-year 2023 attributable to lending activities, according to the Federal Deposit Insurance Corporation as of April 3, 2024. In recent years, community banks have continued to compete with their typically larger non-community bank competitors. 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 right size our solutions to offer competitive pricing and functionality in order to expand into this market.

We have a build, buy, or partner capital allocation strategy for delivering value to customers and stockholders. For more than two decades, we have continuously invested in expanding and improving our solutions to expand our portfolio capabilities and reach into the consumer lending markets. For example, we designed a patented debt optimization engine to deepen the integration of our data verification and LOS solutions to empower loan officers to maximize loan acceptance rates, boost cross-sell opportunities, and deepen their relationships with clients.

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, or CRIF, in June 2018, our closest competitor in consumer lending at the time. In November 2020, we acquired Teledata Communications, Inc., or TCI, the creator of DecisionLender, an industry-trusted LOS that improved our indirect lending capabilities. In December 2020, we acquired all of the assets of TazWorks, LLC, or TazWorks. TazWorks provides software and data solutions to CRAs focused on the employment and tenant screening market, a market that is adjacent and complementary to our current solutions for credit-focused CRAs. In April 2021, we acquired Saylent, a data analytics and marketing solution that enabled us to more rapidly bring to market our MeridianLink Engage product. In April 2022, we acquired StreetShares, Inc., or StreetShares, a financial technology company that enhances our MeridianLink Business capabilities. In November 2022, we acquired Beanstalk Networks LLC, doing business as OpenClose, or OpenClose, a leader in mortgage lending technology, with a particular focus on supporting depository institutions. This transaction has improved our platform by providing more customer-friendly capabilities, particularly through our Point of Sale solution, MeridianLink Mortgage Access, and has helped solidify our position in the depository market.

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

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

Global Considerations

Economic Uncertainty, Rising Inflation, and Increasing Interest Rates

We are also closely monitoring the recent volatility in capital markets and the increased economic uncertainty in the United States. These developments have led to higher inflation and increased uncertainty about business continuity. Additionally, interest rates, including for mortgages and consumer lending, have risen from historic lows and may increase further in the future. These factors may adversely affect our business and our results of operations. As our customers react to global economic conditions and the potential for a global recession, we may see reduced spending on our products and, therefore, may take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity.

Inflation rates, particularly in the United States, have increased recently to multi-year highs. Increased inflation may result in decreased demand for mortgages and consumer lending, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may cause us to experience lower than expected volumes if there is a decrease in customer spending.

As economic conditions continue to change quickly and are subject to rapid and possibly material change, we will continue to actively monitor these factors and may take actions that alter our business operations as we may determine are in the best interests of our customers and stockholders.

Recent Developments

Debt Modification

In May 2024, we amended our credit agreement, which, among other things, lowered the interest rate on our term loan from 3.26% plus Term SOFR (as defined in our credit agreement) to 2.75% plus Term SOFR. The Amendment also increased the aggregate principal amount of the term loan by $50.0 million, which we drew down in connection with the Amendment, resulting in an increase in our outstanding principal balance. We incurred $0.8 million additional financing fees related to the amendment, which were deferred and recorded as a reduction to the debt balance, and which will be amortized as interest expense over the contractual life of the term loan using the effective interest method. Excluding the impact of volatility in Term SOFR, the amendment is anticipated to increase interest expense by approximately $0.5 million per quarter, beginning in May 2024. Increases to Term SOFR during any period would in turn increase our effective interest rate and result in higher interest expense, including acceleration of amortization for deferred financing fees. Our effective interest rate on our term loan was 7.7% as of September 30, 2024, and was 8.9% as of April 30, 2024, immediately preceding the amendment.

Organizational Realignment Plan

In January 2024, our board of directors authorized an organizational realignment plan, or the 2024 Realignment Plan, that is designed to manage operating costs, enable efficient delivery on business objectives, and allow for growth in areas of strategic importance. The 2024 Realignment Plan included a reduction of the Company’s then-current workforce by approximately 12%. We completed the 2024 Realignment Plan in the second quarter of 2024.

Restructuring charges of $4.2 million for severance and related costs, net of $0.0 million previously vested share-based compensation, net of acceleration, were recognized during the nine months ended September 30, 2024, and none during the three months ended September 30, 2024. These charges are reflected in restructuring related costs on our condensed consolidated statements of operations.

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January 2024 Stock Repurchase Program

In January 2024, our board of directors authorized a new stock repurchase program to acquire up to $125.0 million of our common stock, with no fixed expiration date and no requirement to purchase any minimum number of shares, or the 2024 Stock Repurchase Program. The manner, timing, and actual number of shares repurchased under the program will depend on a variety of factors, including price, working capital needs, general business and market conditions, regulatory requirements, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. The repurchase programs may be commenced, suspended, or terminated at any time by us at our discretion without prior notice. Any shares of common stock repurchased under the 2024 Stock Repurchase Program will be retired and automatically returned to the status of authorized but unissued shares of common stock. Approximately $44.4 million (including excise taxes) of the 2024 Stock Repurchase Program was used for the stock repurchase in connection with the February Secondary Offering, as described below. During the three months ended September 30, 2024, approximately $31.3 million was used for repurchases (including excise taxes) made during the period.

Secondary Offerings by Selling Stockholders and Related Common Stock Repurchase

On September 30, 2024, we completed an underwritten secondary offering for the sale of 6,000,000 shares of common stock by certain funds managed by Thoma Bravo, L.P., at an offering price of $21.05 per share, or the September Secondary Offering. In connection with the September Secondary Offering, the selling stockholders granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of common stock at the offering price of $21.05 per share. The underwriters partially exercised their option to purchase an additional 650,000 shares of common stock on October 18, 2024, and the remaining portion of the option expired unexercised on October 26, 2024. We did not receive any proceeds from the sale of our common stock by the selling stockholders in the September Secondary Offering. During the three months ended September 30, 2024, we incurred costs of $0.7 million in connection with the September Secondary Offering. These costs are included within general and administrative expenses on our condensed consolidated statements of operations.

On February 9, 2024, we completed an underwritten secondary offering for the sale of 6,906,015 shares of common stock by certain of our existing stockholders, at an offering price of $19.00 per share (the “February Secondary Offering”). In connection with the February Secondary Offering, selling stockholders granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions. The underwriters did not exercise their option to purchase any additional shares before the expiration of this 30-day window. We did not receive any proceeds from the sale of our common stock by the selling stockholders in the February Secondary Offering. During the nine months ended September 30, 2024, we incurred costs of $1.4 million in connection with the February Secondary Offering. These costs are included within general and administrative expenses on our condensed consolidated statements of operations.

The September and February Secondary Offerings were made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-276336), which was filed with the Securities and Exchange Commission on December 29, 2023, and became effective on January 8, 2024.

On February 9, 2024, in connection with the February Secondary Offering and pursuant to our 2024 Stock Repurchase Program, we repurchased 2,406,015 shares of our common stock from the underwriters at a price per share equal to $18.2875, which is equal to the per share price at which the underwriters purchased the shares from the selling stockholders in the February Secondary Offering, resulting in an aggregate purchase price of approximately $44.4 million (including excise taxes).

Components of Operating Results

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

Revenues

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

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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 it hosts and routine customer support, both of which we account for as a stand-ready performance obligation. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date our solution is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. For the majority of our customers, additional fees for monthly usage are recognized as revenue in the month when the usage amounts are determined and reported. Certain of our subscription contracts are invoiced to our customers annually, and revenue is recognized ratably over the service term.

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

We have concluded that our subscription fees related to monthly usage relate specifically to the transfer of the service to the customer in that month and are consistent with the allocation objective of ASC 606 when considering all the performance obligations and payment terms in the contract. Therefore, we generally recognize additional usage revenues in the month when the usage amounts are determined and reported. This allocation reflects the amount we expect to receive for the services for the given period.

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

Professional Services Revenues

We offer implementation, configuration, consulting, and training services for our software solutions and SaaS offerings. Revenues from our professional services are recognized as control is transferred to the customer, which can be either at a point in time or over time, depending on the nature of the contractual performance obligations.

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

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

Other Revenues

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

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Cost of Revenues

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

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

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

We intend to continue to increase our investments in our implementation and customer support teams and technology infrastructure to serve our customers and support our growth. We expect cost of revenues to continue to grow in absolute dollars as we grow our business.

Gross Profit

Gross profit is revenues less cost of revenues. Gross profit has been, and will continue to be, affected by various factors, including the mix of our subscription fees, professional service and other revenues, the costs associated with our personnel, third-party vendors, and cloud-based hosting services, and the extent to which we expand our implementation and customer support services. We expect that our gross profit will fluctuate from period to period depending on the interplay of these various factors.

Operating Expenses

General and Administrative

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

General and administrative expenses include depreciation of property and equipment and amortization of acquired intangible assets. Identifiable intangible assets with finite lives, such as customer relationships, trademarks, and non-competition agreements, are amortized over their estimated useful lives on either a straight-line or accelerated basis, depending on the nature of the intangible asset.

We continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a public company. These expenses include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of investor relations activities, and investments to drive scalability. As a result, we expect our general and administrative expenses to increase in absolute dollars, but to decrease as a percentage of revenues over the long term as we scale the business and continue to adjust to being a public reporting company.

Research and Development

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

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

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

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and other personnel-related costs, including commissions, employee benefits, bonuses, and share-based compensation. Sales and marketing expenses also include expenses related to advertising, lead generation, promotional event programs, corporate communications, travel, outside consulting fees, and allocated overhead. Commissions related to software sales are generally capitalized and then amortized over the expected period of customer benefit.

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

Total Other (Income) Expense, Net

Total other (income) expense, net consists primarily of interest expense attributable to our credit facilities and amortization of lender-related fees and other direct incremental costs of securing financing partially offset by interest income from our interest-bearing cash accounts.

Provision For (Benefit From) Income Taxes

The Company’s income tax expense includes the changes for the deferred tax asset valuation allowance, 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. We assess whether a valuation allowance should be recorded against our deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” realization standard. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the past and current trend in volatility in our business operating environment which has impacted our current ability and expectation to generate sufficient future taxable income to fully realize our deferred tax assets, we have determined that it is more likely that we would not be able to utilize all of our deferred tax assets, and therefore, we have established a partial valuation allowance on our deferred tax assets as of September 30, 2024, and December 31, 2023.

We have recorded uncertain tax position related to certain research and development tax credits utilized in certain tax jurisdictions, due to the partial utilization of these credits in these tax jurisdictions. This tax position has been recorded primarily as a reduction to the related deferred assets associated with these credits. To date, penalties and interest associated with this position have been immaterial.

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Results of Operations

Condensed Consolidated Statements of Operations

The following table sets forth our condensed consolidated statements of operations data for each of the periods indicated (in thousands, except for share and per share amounts):