Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares in this offering. Therefore, you should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before deciding whether to purchase our common stock.MeridianLink, Inc.
Who We Are
We are a leading provider of cloud-based software solutions for financial institutions, including banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies, or CRAs—providing services to 1,925 customers, including 63 of the leading 100 credit unions per Credit Unions Online (as of September 2020), and a majority of the financial institutions on Forbes’ 2020 lists of America’s Best Credit Unions and Banks. Financial institutions are undergoing a digital transformation as they seek to transition business models, enhance or create new revenue streams, and increase client engagement. We support our customers’ digital transformations by helping them create a superior client experience with our mission-critical loan origination software, or LOS, digital lending platform, and data analytics. Our solutions allow our customers to meet their clients’ financial needs across the institution, which enables improved client acquisition and retention. Additionally, our solutions allow our customers to operate more efficiently by enabling automated loan decisioning and enhanced risk management.
Our software solutions operate at the center of financial institutions’ technology ecosystems and help our customers drive additional business volume, both directly and indirectly through our extensive network of integrations and partner relationships, or Partner Marketplace. Our omni-channel borrowing experience integrates the full spectrum of touch points a borrower may have with our customers—remotely via the web or a mobile app, in person at a branch, or telephonically through a client service representative. In addition to providing a streamlined workflow for our customers, which has been refined over 20 years with feedback from across our customer base, our Partner Marketplace provides them with optional integrations powered by our more than 580 partners as of December 31, 2020. We believe that the collective capabilities offered through our Partner Marketplace further distinguishes our solutions from those of our competitors. We believe that our position in the credit union space provides stability to our business. According to the National Credit Union Administration, or NCUA, credit unions’ net worth, defined as the retained earnings balance, has increased $12.1 billion, or 6.8% year-over-year, to $190.3 billion as of December 31, 2020. Additionally, as reported by the NCUA, total assets in federally insured credit unions rose by $278 billion, or 17.7% year-over-year, to $1.84 trillion as of December 31, 2020 and, from December 2000 through December 2020, total assets in federally insured credit unions increased by $1.41 trillion, representing a compound annual growth rate, or CAGR, of 7.5%.
Our solutions provide a fully digital workflow for our customers, extending from their clients’ initial account opening applications to our customers’ final extension of credit and, where necessary, collections activity. We enable our customers to offer a wide array of products and services to new and existing clients, replacing traditional manual processing and less nimble in-house solutions. Our solutions address nearly all categories of consumer lending, including mortgage, credit card, personal, auto, home equity, and small business loans, and provide the software tools and data necessary to deliver automated decisioning. Our solutions are available in the cloud, and we are working to transition all of our solutions to a public cloud by the end of 2022.
We offer our software solutions using a software-as-a service, or SaaS, model under which our customers pay subscription fees for the use of our solutions and typically have multi-year contracts with an initial term of three years. Our customer contracts are typically not cancellable without penalty. Our subscription fee revenues include annual base fees, platform partner fees, and, depending on the solution, fees per search, per loan application or per closed loan (with some contractual minimums based on volume) that are charged on a monthly basis, which we refer to as volume-based fees. We seek to deepen and grow our customer relationships by providing consistent, high-quality implementations and customer support services which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We plan to continue investing in migrating all of our solutions onto a single platform resident in a public cloud and driving product development to further increase customer cross-selling and retention. We believe that our increased focus on our go-to-market strategy and partnerships will drive incremental opportunities for revenue and accelerate client cross-sell growth.
We have had a strong track record of growth throughout our operating history, including through the ongoing COVID-19 pandemic. Our total revenues were $152.7 million and $199.3 million for 2019 and 2020, respectively, representing a 30.5% growth rate. We also had subscription fee revenues of $137.6 million and $177.0 million for 2019 and 2020, respectively, representing a 28.6% growth rate. Our net loss for 2019 was $12.6 million and our net income for 2020 was $9.2 million. Our Adjusted EBITDA was $64.5 million and $104.6 million for 2019 and 2020, respectively, representing an increase of 62.3%. Our gross margin was 69.0% and 70.7% for 2019 and 2020, respectively. Our Adjusted EBITDA margin was 42% and 53% for 2019 and 2020, respectively. See “Non-GAAP Financial Measures” for a reconciliation of non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP, and a discussion of our management’s use of Adjusted EBITDA and Adjusted EBITDA margin.
Our Value Proposition
Our software solutions enable financial institutions to streamline loan decisioning, account opening, deposit taking, loan origination, and customer collection workflows to help drive higher client retention. The wide array of financial institutions we serve, which include banks, credit unions, mortgage lenders, specialty lending providers, and CRAs, all have varying needs. Our technology and solutions empower consumer financial institutions, such as credit unions and community banks, to more effectively compete with tier 1 banks by making their products and services simpler and faster for their clients with enhanced features and functionality. In addition, CRAs leverage our solutions as their system of record to deliver credit and other information from a number of data vendors (including the credit bureaus) to enable lending decisions for financial institution customers. Our software for CRAs manages workflow, relationships with the credit bureaus, back-end packaging, non-credit data access, and billing.
Our solutions provide our customers with:
By automating and improving on existing processes through the use of our solutions, our customers can save time and resources while reducing operational risk and improving customer retention, acquisition, and satisfaction.
Who We Serve
We have had the privilege of helping our customers over the past 20 years to revamp their lending and account opening processes, reduce operational costs, and increase revenue. Our diverse client base includes 1,925 customers as of December 31, 2020, including banks, credit unions, mortgage lenders, specialty lending providers, and CRAs. As of December 31, 2020, our customer mix includes 63 of the leading 100 credit unions per Credit Unions Online (as of September 2020), and a majority of the financial institutions on Forbes’ 2020 lists of America’s Best Credit Unions and Banks. Our broad reach provides connections to over 200,000 active system users, who are individuals who have accessed one of our solutions in the 90 days prior to our measurement period of January 18, 2021.
We focus our efforts on financial institutions. Our addressable market also includes specialty lending customers that target consumer credit opportunities. Specialty lending companies drive higher per customer application volume and help diversify our end-markets. Our technology enables our customers to bridge the functional silos of their institutions and thereby increase their ability to serve more of their clients’ needs and achieve incremental revenue.
We are proud of our track record of excellence with an average Net Promoter Score, or NPS, across our consumer loan origination, mortgage loan origination and data verification solutions of 32 as of December 2020. An NPS can range from a low of –100 to a high of +100. NPS measures the willingness of customers to recommend a company’s products or services to other potential customers and is viewed as a proxy for measuring customers’ brand loyalty and satisfaction with a company’s product or service. In addition, we believe that our extensive Partner Marketplace helps distinguish us from our competitors as we have integrations with over 580 partners as of December 31, 2020. Our integrations include both large, established players and emerging disruptors. Our Partner Marketplace drives value for our customers by expanding their access to the tools needed to streamline the loan and account opening processes within the workflow management of our solutions.
History
We have expanded our offerings and customer base through a combination of in-house initiatives and accretive acquisitions to support continuous innovation for our customers’ benefit. Our expanding suite of technology and services has contributed to our growth despite a variety of market conditions over the past two decades. During and after the global financial crisis, we believe that we became a preferred provider among consolidating CRAs and community financial institutions due to our innovation and focus, including functionality to bundle account opening and the loan origination process into a seamless workflow, thereby enabling our customers to increase their market share.
Thoma Bravo acquired and combined MeridianLink with CRIF Corporation, or CRIF, in June 2018. The acquisition of CRIF’s capabilities coupled with an aggressive integration plan accelerated the growth of the combined company. We have realized substantial synergies through the full functional integration of MeridianLink and CRIF, including unified back-office systems and alignment of customer support and elimination of duplicative product development costs. The MeridianLink and CRIF solutions, however, continue to operate independently as supported by the integrated back-office teams. The MeridianLink solutions are considered the “go forward” platforms such that some customers using CRIF solutions have begun migration onto MeridianLink platforms. Additionally, CRIF solutions are not currently being sold or marketed. However, we have made investments in resources to allow the legacy CRIF products to continue to operate, and there is no planned sunset or end of life for those products. Continued optimization of the business has led to accelerated revenue growth, and increased customer retention, as well as improving operating margins. Prior to our acquisition by Thoma Bravo, we grew primarily through responding to potential customers’ requests for proposals, or RFPs, and inbound calls and focused on retaining and expanding existing accounts. Since the acquisition by Thoma Bravo, we further invested in direct marketing and selling efforts to expand into financial institutions that fit within our existing target markets. In addition to acquiring new customers, our direct selling efforts include cross-selling and upselling of our expanding capabilities into our substantial customer base.
In November 2020, we acquired Teledata Communications, Inc., or TCI. TCI is the creator of DecisionLender, a SaaS loan origination solution that was first released in 1998. DecisionLender is an industry-trusted LOS that primarily serves the indirect lending needs of banks, credit unions, and financial companies nationwide. By integrating TCI’s knowledge and technologies, we seek to accelerate innovation within our LOS solution roadmap in order to provide our customers with leading enterprise business solutions.
In December 2020, we acquired substantially all of the assets of TazWorks. TazWorks is the creator of TazCloud, an end-to-end technology solution for the background screening industry. TazCloud supports a large number of independent screening agencies across the nation and includes a robust suite of screening applications, a powerful API, and advanced business intelligence tools that help screening professionals operate efficiently. TazCloud delivers a robust network of integrations ranging from quality data providers to human resource information systems, property management, applicant tracking systems, and drug screening providers. TazWorks provides us with capabilities that are highly complementary to our Mortgage Credit Link offering, enabling us to provide our CRA customers with a better and more enriching experience.
The TCI and TazWorks solutions represent product offerings not previously fully offered by the MeridianLink solutions. We consider these solutions to be complementary to MeridianLink’s prior offerings, and plan to continue to market and sell them. We are considering integration of these solutions with other MeridianLink solutions on the product roadmap at a future date.
Industry Background
The financial services sector is in the midst of a transition from offering primarily in-branch services to providing hybrid in-person and digital services. This transition has recently accelerated, leading to increased investment in software that enables digital capabilities. We are well-positioned to assist our customers to compete with tier 1 banks and digital market entrants. We enable financial institutions to leverage their cost of capital advantage and community presence by allowing them to execute faster. With the digital edge we provide, our customers become more competitive in this evolving environment, which drives further volume on our platform.
Growing financial institutions demand for streamlined consumer lending software to accurately and efficiently gather the data needed to open and process all types of accounts and loans. Our core customers tend to lack the resources required to match the modernization and technology investment efforts of larger industry players. At the same time, digitalization remains critically important for our customers to compete. Having the ability to automate workflows and provide a user-friendly online process enable a financial institution to grow and maintain their client base. Our solutions provide our customers with the ability to succeed in the evolving digital lending marketplace. Financial institutions use our solutions as their LOS to provide a frictionless experience by consolidating data from all existing channels—mobile, online, branch, call center, indirect, retail, and kiosk—into a single origination point. When the lending and account origination processes are straightforward, branch staff have more time to serve their clients’ needs in an efficient and timely manner.
Digital transformation in financial institutions is accelerating software adoption and driving technology spend. Investments in digital solutions are critical for obtaining and retaining clients and this necessity has accelerated in the COVID-19 era. Our automated workflows allow for responsiveness and savings on operational costs. Technology in the origination process translates into a significant competitive advantage for lenders. We believe that the ongoing digital transformation of mid-tier financial institutions will be a driver of our growth over the next decade, as changing needs mean more demand for additional modules and services from new and existing clients. Our software solutions assist a financial institution in its determination of what loans a client can qualify for today, accelerates the processing and funding of a loan through automated decisioning and workflow, and informs the client how to improve his or her access to credit tomorrow or further into the future. Local financial institutions have begun to adopt online lending, but significant runway exists. See the section titled “—Market Opportunity” for more information.
Rising mortgage loan volume and origination costs drive demand for systems that optimize lending decisions and loan composition in an automated, accurate manner. The cost to originate mortgage loans in 2019 was 150% of the cost to originate such loans following the 2008 financial crisis, driven in no small part by personnel and ancillary costs required to comply with evolving regulations. The traditional mortgage loan origination process is outdated, requiring lengthy processes and paper forms. As of October 2020, it takes an average of 54 days to originate a mortgage loan. Advancements in mortgage LOS are transforming the process to be more automated, paperless, and fully-remote, from the initial application to closing and thereafter, greatly bolstering loan processing efficiency.
Delivery of secure and accurate data from disparate sources to institutions that rely on independent verification services. While potential customers will sometimes opt to create their own solutions to address these needs or build additional functionality into other competing solutions, launching data initiatives can be expensive, time consuming, and risky, which can be further complicated by adding credit, income, and other verification data into existing solutions. We offer complete back office functionality for CRAs and other verification service providers to process credit standing, employment, income, and tax transcript verification.
Data and analytics as an increasing area of focus by our customers. Our customers are increasingly seeking to understand both their clients and their own operations at a greater level of detail. To better serve our clients, our data intelligence solution provides intuitive dashboards, easy to read reports, and meaningful operational benchmarking data, presenting a comprehensive solution for the multi-level audience within an organization. Though our data and analytics solutions amount to a single digit percentage of our total revenues in 2020, data products that allow customers to obtain standard data reporting and analytics have been an area of focus and growth for us and our customers.
Market Opportunity
Our currently addressable market includes the U.S. consumer lending categories of small business, home equity, auto, personal, credit card, and mortgage, as well as data access for credit, income verification, and other related services. Financial institutions continue to invest in software applications and infrastructure, and global demand for cloud-based solutions in banking continues to increase. IDC estimates that SaaS revenues from the banking sector are projected to increase from $16 billion in 2019 to $32 billion in 2024, representing a CAGR of 16%. IDC estimates that approximately 60% of SaaS revenues from the banking sector are derived from the United States, where they are projected to increase from $10 billion in 2019 to $19 billion in 2024, representing a CAGR of 14%. Furthermore, according to the EY Global Banking Outlook 2018, 85% of global banks are undertaking digital transformation to modernize their operations and more than 60% of global banks intend to increase investment in cloud technology before 2021.
We conservatively estimate, based on independent analysis from a study we commissioned from Cornerstone Advisors, that the total U.S. domestic addressable market opportunity, in the primary solution categories that our software solutions serve, to be $10 billion. This study by Cornerstone Advisors employed metrics regarding the number of addressable credit unions, banks, and independent mortgage companies; estimated transaction volumes at institutions of various sizes; and estimated transaction and annual fees. This bottoms-up analysis spanned across five market channels, including estimated addressable markets of $5.8 billion for loan origination software (including consumer, mortgage, commercial, marketing automation, loan decisioning and merchant-based buy now, pay later lending), $2.4 billion for account opening and point-of-sale software, $1.0 billion for portfolio and lending performance software, $0.6 billion for collection software, and $0.3 billion for data access software (including consumer data and CRA enablement). This study calculated estimated addressable markets across these five market channels based on a calculation tied to fixed price per application, fixed annual fees, fixed setup fees, or fixed average number of purchasers, depending on the relevant channel.
While the overall software spend within the banking sector has continued to grow, we believe our focus on credit unions provides added strength to our business. According to the NCUA, credit unions’ net worth, defined as the retained earnings balance, has increased $12.1 billion, or 6.8% year-over-year, to $190.3 billion as of December 31, 2020. Additionally, as reported by the NCUA, total assets in federally insured credit unions rose by $278 billion, or 17.7% year-over-year, to $1.84 trillion as of December 31, 2020 and from December 2000 through December 2020, total assets in federally insured credit unions increased by $1.41 trillion, representing a CAGR of 7.5%. These recent trends are also observed over the longer term, with the NCUA reporting that credit unions experienced average annual loan growth of 7.0% and average annual asset growth of 7.5% from 2001 to 2020.
Competitive Strengths
Our end-to-end, omni-channel lending platform provides our customers with valuable cross-sell opportunities, third-party technology integrations, and full decisioning capabilities supporting every aspect of the loan origination process. We are differentiated by our strong customer support and extensive integration capabilities as well as our depth of market knowledge from our 20-year operating history and singular focus on lending and credit products. Our position as a leading provider of mission-critical software solutions for financial institutions is built on the following strengths: