MeridianLink - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue was $79.4M (+7% YoY), adjusted EBITDA was $33.4M (42%), both above the high end of Q4 guidance, while GAAP diluted EPS was $(0.10); consumer lending grew +9% YoY, offset by mortgage software decline of 7% YoY.
• Full-year 2024 delivered revenue of $316.3M (+4% YoY) and adjusted EBITDA of $130.7M (41%), at the high end of the FY guide; management introduced 2025 guidance of $326–$334M revenue and $131.5–$137.5M adjusted EBITDA (~41% margin) and shifted to annual-only guidance updates going forward.
• MeridianLink authorized a new $129.5M stock repurchase program in February 2025, providing an additional capital return lever and potential support for shares; management emphasized investment in sales/marketing, product and infrastructure to capture share when volumes recover.
• A litigation settlement/renewal with a large data verification customer implies ~$6M annual revenue reduction, a ~220 bps drag to 2025 revenue growth; the constraint on mortgage-related volumes keeps near-term growth muted, but ACV release remains the primary growth driver.

What Went Well and What Went Wrong

What Went Well

• Record bookings for the second consecutive year with strong ACV release and ~400 bps YoY adjusted EBITDA margin expansion, highlighting execution despite macro uncertainty (“controlling what we could control”).
• Best new logo quarter in two years and strong cross-sell: 15 Access wins and an $8B bank adopting Mortgage + Consumer, underscoring platform breadth and time-to-value.
• Free cash flow conversion remained solid in Q4 ($12.1M, 15% of revenue), with cash rising to $92.8M (+$10.5M QoQ), supporting investment and buybacks.

What Went Wrong

• Mortgage software revenue declined 7% YoY in Q4 on churn and customer downsell, partially masking strength in consumer lending (+9% YoY).
• GAAP net loss of $(7.7)M and persistent interest expense ($8.9M) weighed on GAAP profitability; G&A rose 36% YoY in Q4 due to discretionary investments for scale.
• Management’s cautious 2025 outlook cites volumes as a low single-digit drag (including the DBS customer renewal); shift to annual-only guidance reduces quarterly visibility for near-term forecasting.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to MeridianLink's Fourth Quarter and Fiscal Year 2004 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to the first speaker today, Gianna Rotellini. Gianna, please go ahead.

Gianna Rotellini (Senior Director of Investor Relations and Strategic Initiatives)

Good afternoon and welcome to MeridianLink's fourth quarter and fiscal year 2024 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are MeridianLink's Chief Executive Officer, Nicolaas Vlok, President, Larry Katz, and Chief Financial Officer, Elias Olmeta. Before we begin, I'd like to remind you that today's conference call will include forward-looking statements based on the company's current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For discussion of the risks, uncertainties, and other factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and the periodic reports and filings we file from time to time with the Securities and Exchange Commission.

All of our statements are made based on information available to us as of today, and, except as required by law, we assume no obligation to update any such statements. Please note that, other than revenue, all numbers and remarks are on a non-GAAP basis unless otherwise stated. A reconciliation to comparable GAAP metrics can be found in today's earnings presentation, which is available on our Investor Relations website and as an exhibit to the Form 8-K furnished with the SEC just before this call. Our earnings presentation is available for you to download and reference throughout our prepared remarks. With that, let me turn the call over to Nicolaas.

Nicolaas Vlok (CEO)

Thank you, Gianna. Good afternoon, everyone, and thanks for joining us today. MeridianLink closed 2024 with a strong fourth quarter. We recorded revenue in excess of $79 million, or 7% growth year-over-year, and adjusted EBITDA above $33 million, or a 42% adjusted EBITDA margin. I'm pleased with our results in a challenging and uncertain macro environment. Most importantly, we continued our commitment to being the leading financial technology platform trusted by customers to execute winning lending strategies with MeridianLink One. Despite the headwinds of 2024, we executed well, controlling what we could control. Our sales team generated strong demand and delivered the second consecutive year of record bookings. Our services team accelerated time to revenue and achieved a high world mark in our subscription revenue activations, which we've previously referred to as ACV release.

Our product teams continued to innovate by adding capabilities that strengthen MeridianLink One's position as the leading digital lending platform for mid-market financial institutions. We significantly improved our operating efficiency, delivering over 400 basis points of adjusted EBITDA margin expansion. We continued our disciplined approach to capital allocation, completing several transactions that strengthened our balance sheet and diversified our shareholder base. Looking forward, I would like to frame 2025 by sharing some industry observations based on conversations with credit union and bank executives. While economic uncertainty is high and consumer confidence is challenged, customers and prospects are increasingly prioritizing investment in lending technology. These investments are focused on platforms that enable omni-channel client acquisition, touchless lending, and seamless integrations with best-of-breed solutions.

To compete for digitally native consumers, financial institutions are prepared to increase their technology spend in lending platforms, and we see a longer term trend benefiting MeridianLink One, our market-leading platform. I'm excited about what's in store for MeridianLink. There is no other digital lending platform with the breadth and depth of MeridianLink One. While volumes have weighed on recent top-line growth, we are focused on long-term growth, investing to meet our customers' needs and accelerating platform adoption. Go-to-market and service delivery investments have paid off, with consecutive years of record bookings and activations. Despite the current environment, we believe in our long-term opportunity and plan to deploy capital into sales and marketing, product, and infrastructure, which will further position us to capture share and volume when the market returns. I have great confidence in our ability to scale the business in 2025 and beyond.

Before I turn it over to Larry, I want to update you on a change to our guiding practice. Going forward, we will provide quarterly updates to our annual guidance, and we will no longer provide guidance for the following quarter. We are making this change because we are focused on delivering long-term value, and we firmly believe that annual guidance is the best lens for investors to evaluate our business. Elias will share more in his remarks. I'd like to thank the entire MeridianLink team for our solid performance this year. With your expertise and dedication, I'm proud that we ended another year delivering on our commitments to customers and shareholders. Now, I will turn it over to Larry to review our business highlights.

Larry Katz (President)

Thanks, Nicolaas. We finished the year with strong sales execution, posting record bookings for the second year in a row. Both new logo and cross-sell bookings increased year-over-year as both credit unions and banks turned to MeridianLink as a trusted partner to accelerate their digital transformation. We had strong bookings performance in both cross-sell and new logo. We also had a higher mix of mortgage and larger ACV platform wins. A key driver of our sales performance is the breadth and depth of the MeridianLink One platform, which provides us a natural expansion opportunity across more than 1,500 lending software customers. Our ability to win is a testament to the deep expertise, best-of-breed platform functionality, and market-leading reputation that we've built over the past 25 years.

Since stepping into the presidency six months ago, I've had the opportunity to meet with dozens of customers, partners, prospects, and industry experts. The messages I hear are consistent. We have a distinctive and compelling platform, and our customers are committed to running their lending business on MeridianLink One. At the same time, our customers are looking to us to continue to innovate, to deliver distinctive solutions that help them grow by acquiring and serving digitally native consumers in an AI-enabled world. They also look to us to continually make it easier to do business with us. The message is clear. We have done well over the years, and we absolutely have an opportunity to do better. With all commercial functions now under one roof, I'm focused on breaking down silos, ensuring that customer feedback more actively informs our product roadmap and streamlines our customer journey.

As we head into 2025, we are continuing to invest in sales and marketing to further optimize our land and expand strategy. We are adding to our solutions consulting team to help customers and prospects understand the value of our platform and how it meets their needs. We are maturing our account-based selling motions based on extensive white space analytics and enhanced demand generation strategies. Entering the year with a robust pipeline and solid foundation in place, I'm confident that our team is well-positioned to generate increased demand more efficiently. With that, I will move to our business highlights for Q4. We had a strong quarter of cross-sell and upsell, demonstrating the resilient nature of our customers who continue to invest in innovative solutions even in a challenging market.

For example, an existing consumer lending bank customer with $9 billion in assets recently added MeridianLink Access and MeridianLink Business and now deploys a total of six modules across the MeridianLink One platform. This customer also enabled MeridianLink's automated decisioning capability to drive touchless lending. This is a great example of the opportunity that MeridianLink One presents to deepen and expand existing relationships. Of note, this access win was one of 15 in the fourth quarter, more than tripling customer wins year-over-year. Turning to new logo wins, this was our best new logo quarter in two years, increasing new customer bookings nearly 40% year- over-year. This suggests that financial institutions are leaning into their digital transformation to prepare for a more robust demand environment.

For example, we signed a bank with $8 billion in assets onto MeridianLink Mortgage and MeridianLink Consumer, enabling them to seamlessly execute a high-value cross-sell strategy. We won this competitive deal due to our feature-rich functionality, speed of implementation, and partner integrations. This customer is also leveraging our patented debt optimization capability to increase visibility across the consumer debt wallet, which maximizes acceptance rates and deepens relationships with clients. We also delivered another solid quarter and year of subscription revenue activations, or ACV release, showcasing our services team's continued focus on streamlining delivery. We activated more subscription revenue dollars than in 2024. Heading into 2025, our plan is to release more ACV dollars while maintaining healthy backlog. Moving to product, we launched a new share of wallet add-on for MeridianLink Consumer and Opening customers.

This unique data-rich product supports our customers' cross-selling efforts by identifying financial products that consumers have with other financial institutions. Share of wallet helps our customers extend wallet share and increase lifetime value of their consumer relationships while reducing acquisition costs. FedChoice Federal Credit Union chose to implement our share of wallet product to drive more relevant cross-sell. They ran campaigns for personal loans and HELOCs, which successfully shifted members towards money-saving fixed-rate products. With the new ability to deliver highly personalized offers to its members, FedChoice's cross-sell campaigns hit conversion rates of up to 9%. Ending now with a great new partner ad, we announced a new partnership with ScoreNavigator, an advanced credit report analytic tool designed to help consumers better understand and manage their finances. ScoreNavigator integrates with our data verification solutions and provides mortgage lenders with more efficient methods of assessing applicant creditworthiness.

Through the ScoreNavigator platform, the loan officer can communicate with applicants to help them improve credit scores during the application process and consolidate debt, thereby increasing lender application approvals. Leading CRAs like CIC and Advantage Credit have used the integration for their lenders for strengthening consumer relationships and boosting retention. With that, I will now turn the call over to Elias to share our financial results in more detail and provide annual guidance for 2025.

Elias Olmeta (CFO)

Thank you, Larry, and good afternoon, everyone. We finished the year with a solid fourth quarter. Throughout 2024, MeridianLink achieved consistent revenue growth, expanded profitability, and improved free cash flow conversion. Drilling into Q4, we achieved GAAP revenue of $79.4 million, or 7% growth year-over-year, which is at the high end of our guidance range. Adjusted EBITDA was $33.4 million, a 42% adjusted EBITDA margin, which exceeded the high end of our guidance range. We generated $12.1 million of free cash flow, or 15% of revenue, and ended the quarter with $92.8 million in cash and cash equivalents. Before I further describe our revenue growth, in prior quarters, we have made reference to a large data verification customer downsell. We are in active litigation with this customer and have reached an agreement to mutually drop our claims, with the parties entering into a three-year agreement.

We anticipate that going forward, annual customer revenue will be reduced by approximately $6 million as a result of the downsell and the recent agreement. Revenue from this customer totaled $13.1 million in 2024. This downsell has been a headwind to our data verification and total revenue growth in prior years. We anticipate that the identified adjustment in revenue from 2024 to 2025 will impact total revenue growth by approximately 220 basis points. Now, turning to our Q4 total year-over-year revenue performance of 7% growth in terms of the revenue algorithm. One, ACV release contributed mid-single digits. Two, price and churn were in the low single digits each and essentially offset each other. Three, volumes and one-time customer downsells combined were in the low-single digits and mostly offset each other.

Moving to our total revenue performance of 7% growth in Q4 by source, subscription revenue grew 5% year-over-year, contributing significantly at 82% of our total revenue. This growth was driven by the successful activation and recognition of subscription revenue from our implemented software solutions for both new and existing customers, what we refer to as ACV release. Services revenue grew 6% year-over-year, primarily driven by higher implementation fees associated with software from additional bookings. Other revenue grew 40% year-over-year, driven by one-time partner revenue share true-ups. Now, looking at our 7% total revenue growth in Q4 by solution type, total lending software revenue growth was 7% year-over-year and accounted for approximately 80% of revenue. Excluding revenue from the mortgage loan market, consumer lending revenue growth was 9% year-over-year and accounted for 89% of lending software revenue.

This strong growth in uncertain macro demonstrates the power of our core franchise. Mortgage lending software solutions declined 7% year-over-year and accounted for the remaining 11% of lending software revenue. The decline was attributable to customer downsell and churn. Turning to data verification software solutions, revenue increased 4% year-over-year and accounted for 20% of total revenue. This increase was attributable to a 5% increase in mortgage-related revenue, which represented 57% of total data verification software revenue in Q4. As we lapped the one-time customer downsell from the customer I previously mentioned in Q3, revenue accelerated in the quarter. Moving on to our profitability. Adjusted gross profit was $59 million, representing a 74% margin and a 37 basis point improvement in operating leverage year-over-year.

Turning to operating expenses, R&D expense was $7 million, or 9% of revenue, and declined 22% year-over-year, reflecting lower staffing due to our previously announced restructuring. Sales and marketing expense was $8.6 million, or 11% of revenue, up 2% year-over-year. G&A expense increased 36% year-over-year to $11.1 million, or 14% of revenue, reflecting select discretionary investments made to position the company for scale. Adjusted EBITDA was $33.4 million, a 42% adjusted EBITDA margin. This is a 28 basis point improvement in operating leverage year-over-year. Finishing with our capital position, cash flow from operations was $13.8 million, or 17% of revenue, and free cash flow was $12.1 million, or 15% of revenue. We ended the fourth quarter with cash and cash equivalents of $92.8 million, an increase of $10.5 million in Q3. Now let's look at full year 2024 results.

We had a challenging operating environment, especially in the first half of the year. Notwithstanding, we achieved solid in-year revenue growth. As Larry mentioned, record bookings and the highest adjusted EBITDA margin in three years. Revenue increased 4% to $316.3 million for the year. Describing the 4% revenue growth in terms of the revenue algorithm, one, ACV release contributed mid-single digits. Two, price and churn were in the low-single digits each and essentially offset each other. Three, volumes and a one-time DVS customer downsell combined were a low single-digit track. Now turning to our 4% year-over-year revenue growth by source. Subscription revenue grew 3% year-over-year, which contributed 84% of total revenue. Services grew 9% year-over-year, primarily driven by higher implementation fees associated with software from additional bookings. Other revenue grew 17% year-over-year, driven by increased partner revenue.

Now, looking at our 4% total revenue by solution type, total lending software revenue growth was 7% year-over-year and accounted for nearly 79% of total revenue. Excluding revenue from the mortgage market, consumer lending revenue growth was 9% year-over-year and accounted for 89% of lending software revenue. Achieving 9% year-over-year growth in our core business is a huge accomplishment, especially in the context of one of the most challenging lending environments. This highlights the value of our investments and the work and success of our go-to-market and services team over the last year. Mortgage lending software solutions declined 7% year-over-year and accounted for the remaining 11% of lending software revenue. The decline was attributable to customer churn and downsell. Mortgage volumes were strong year-over-year, and contracts below their minimum significantly improved from approximately two-thirds to approximately one-half by the end of Q4.

Turning to data verification software solutions, revenue declined 6% year-over-year and accounted for 21% of total revenue. This decline was attributable to an 11% decrease in mortgage-related revenue, which represented 56% of total data verification software revenue in the year. This decline in mortgage-related data verification revenue was driven by the one-time downsell of a single large customer discussed previously. Moving on to our profitability, adjusted gross profit was $232 million, a 73% adjusted gross margin. This is nearly 100 basis points of improvement in operating leverage year-over-year, driven by continued productivity of our services team. Turning to operating expenses, R&D expense was $29.4 million, or 9% of revenue, and declined 27% year-over-year, reflecting lower staffing due to the previously mentioned restructuring. Sales and marketing expense was $35.9 million, or 11% of revenue, up 13% year-over-year.

This increase is primarily due to investment in our go-to-market team and strategy. G&A expense increased 12% year-over-year to $40.8 million, or 13% of revenue, reflecting the previously mentioned select discretionary investments made to position the company for scale. Adjusted EBITDA was $130.7 million, a 41% adjusted EBITDA margin. This is a 400 basis point improvement in operating leverage year-over-year. We made some purposeful discretionary investments in the year while maintaining disciplined cost management. Finishing with our capital position, cash flow from operations was $77.8 million, or 25% of revenue, and free cash flow was $70.3 million, or 22% of revenue. Total debt was $472.7 million, and excluding debt issuing costs and cash, net debt was $375.8 million, representing net debt to LTM adjusted EBITDA of approximately three times. Once again, we were disciplined allocating capital.

We invested in the business and repurchased shares at a discount to intrinsic value, returning $105.4 million of capital to stockholders through repurchases. We also engaged in several capital market activities, such as the debt repricing and top-up, and two secondary offerings that broadened our shareholder base. Now I'll provide guidance for 2025. As Nicolaas mentioned, going forward, we will only provide annual guidance updates on our quarterly calls. While we will no longer provide prospective quarterly guidance where relevant, we will comment on and provide insights into anticipated trends. We have made this change because we want to improve the alignment between our guidance and how we run the business. Our approach is to deploy capital and to create long-term value for our shareholders.

We believe that shifting to annual guidance will help to focus our operating teams and the equity market on the long-term progress that we are making, rather than on quarterly variances. Keep in mind that our variances are typically driven by volumes, which are less predictable and tend to obscure the more stable and important drivers of our business, which include ACV release. Moving on to 2025 guidance. Ongoing conversations with customers and recent economic data point to an uncertain environment for the consumer in 2025. As a result, we are cautious in our outlook for customer volumes and associated revenue. We expect total GAAP revenue to be between $326 million-$334 million, compared to $316.3 million for the full year of 2024. This represents an estimated increase of 3%-6% year-over-year.

To provide more color on how revenue will trend by solution type at the midpoint of our guidance, we expect the mortgage market to contribute approximately 18.5% of revenue for the full year 2025. To help investors understand our sensitivity to current volume levels in our mortgage lending business, we estimate that a 5% increase in our expected annual mortgage loan volumes will yield approximately a 1% increase in our annualized mortgage lending subscription revenue. There is not a one-for-one correlation between volumes and revenue growth because only the incremental volumes for customers above their minimums convert into overage revenue, and overage revenue is a fraction of the total revenue for the year. On the non-mortgage side, we expect modest growth year-over-year in data verification revenue. Understanding these dynamics, we expect consumer lending will grow approximately 7% in 2025, driven by releasing ACV at a steady pace.

In a higher-for-longer interest rate environment, consumer volumes are expected to be flat year-over-year. I will now describe our 4% total revenue growth at the midpoint of our guidance in terms of the revenue algorithm. One, we expect ACV release to continue contributing mid-single digits and be the single largest driver of our revenue growth in 2025. Two, we expect price and churn to continue to offset each other. Three, we expect that volumes and the DVS customer renewal combined will be a low single-digit track. Excluding the customer downsell, total volumes across all our products will be slightly positive year-over-year and be a neutral contribution to revenue growth. Now, focusing on the adjusted EBITDA guide, for the full year 2025, we expect our adjusted EBITDA range to be between $131.5 million and $137.5 million, representing an adjusted EBITDA margin of approximately 41% at the midpoint.

As revenue increases, we are investing in our product roadmap and go-to-market team to drive growth. We continue to manage the business to eventually become a rule-of-50 company and are investing appropriately. Given our visibility into Q1 trends, insight from customers, and recent economic data, we anticipate normal seasonality in our revenue through 2025. MeridianLink's high percentage of subscription revenue and strong quarterly ACV release give us confidence in our annual growth expectations, with relatively stronger sequential revenue growth in the second half of the year. We expect our expenses to be impacted by the timing of investments that will start in Q2. These will ramp up in the second half, and there will be a modest contraction in margins.

Both R&D and sales and marketing, as a percentage of revenue, will increase approximately 100 basis points for 2025 compared to 2024, as we invest in our product roadmap and go-to-market capabilities. As a result, we expect adjusted EBITDA margins to be the highest in the first quarter before slightly declining in the second half of the year. I'd like to end with how we are thinking about capital allocation going forward. To reiterate, our order of priorities is: first, investing in organic growth in areas that deliver repeatability and scale to the organization. Second, disciplined M&A. We remain ready to execute on the right deal at the right price and have recently invested in our corporate development team. Third, repurchasing our shares when trading at a discount to intrinsic value.

I'm excited to announce that in February, our board authorized a new stock repurchase program to acquire up to $129.5 million. On this last point, I would like to comment on our stock-based compensation philosophy. In 2024, we made larger-than-usual grants as we recruited new leadership to help scale the organization. Our expectation is that share grants will come down in 2025. Finally, I'd like to reiterate how resilient the company has been, all thanks to the outstanding effort of our team. We ended the year strongly despite the challenges we faced because of the dedication and skill of our employees who work closely every day for the benefit of our customers. Looking forward, we believe this is a year during which execution remains paramount while the macro takes time to recover.

As that manifests itself, we will continue investing in technology, infrastructure, and sales and marketing to support future growth and scale. With that, Nicolaas, Larry, and I are happy to take any of your questions and will turn it over to the operator.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number one on your touchstone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Cris Kennedy from William Blair. Please go ahead.

Cris Kennedy (Research Analyst of Financial Services and Technology)

Good afternoon, and thanks for all the new disclosures and the new detail.

When you think about the volume component, you gave good color on the mortgage, the sensitivity of the mortgage side of the business. Is there any way to think about the sensitivity on the non-mortgage component?

Elias Olmeta (CFO)

Hi, it's Elias. Thanks for the question. Thank you, and thank you for acknowledging that we've improved our disclosures, and we are going to continue to work on that. At this point, I am not going to be providing further disclosures around consumer, but that is something that we will keep in mind for future calls.

Cris Kennedy (Research Analyst of Financial Services and Technology)

Okay, understood. Just talk briefly about the sustainability of your 41% EBITDA margin target going forward as the environment changes and as you continue to invest in sales and marketing. Thanks for taking the questions.

Elias Olmeta (CFO)

Yeah, of course. Look, we feel good about the 41%.

As we talked about last quarter, the number to really anchor around is the 40% guidance. What's really occurring, though, is as we ramp up some of the investments that I was referencing in my color commentary, those are going to come in in the second half of the year. You are going to see a slightly higher and more elevated set of margins in Q1, possibly even in the first half. As those investments roll onto the P&L, obviously, that will put a little bit of pressure on those margins. What you are seeing in the 41% guidance is really not us signaling that it is going from 40% to 41%, rather just simply acknowledging the timing around some of the investments that we are undertaking. We feel very good about it. We have good cost control in place and continue to be disciplined about how we deploy capital.

Cris Kennedy (Research Analyst of Financial Services and Technology)

Great.

Thanks for taking the questions.

Operator (participant)

All right, your next question comes from Andrew Schmidt from Citi. Please go ahead.

Andrew Schmidt (BP&A Lead Analyst)

Hi, guys. Thank you for taking the questions this evening, and good to see the stability here. Maybe just on the investments for 2025, I heard the detail around sales and marketing, but you also mentioned product infrastructure. If you could put a finer point on where the investments are being made across the other categories outside of sales and marketing, that would be great. Thank you very much.

Nicolaas Vlok (CEO)

Hey, Andrew, thank you for the question. It's Nicolaas. We are going to invest—let's tackle the question in two sections. On the product side, our focus is on digital digital interfaces. It's in partner infrastructure. It's also around our mortgage business, where we continue to see expanded opportunity.

What I would call infrastructure, which kind of spans out of our product and internal business systems, but it's around data engineering and scaling our systems to continue to scale the business in the future.

Andrew Schmidt (BP&A Lead Analyst)

Thank you for that, Nicolaas. Maybe just the next question on just the pipeline that you're seeing. Obviously, fourth quarter tends to be a higher watermark for bookings, but it was a very good quarter from a new logo perspective, as you called out, with some larger bank wins. Maybe just talk a little bit about what you're seeing in terms of the pipeline, the size, and composition, and whether you see that new logo momentum continuing. Thank you very much.

Larry Katz (President)

Yeah, hi Andrew, it's Larry. Apologize for my voice here.

Look, pipeline, we ended the year with a—apologize—we ended the year with a strong pipeline and feel good about the momentum coming into the first half of the year across the products.

Nicolaas Vlok (CEO)

You want me to grab it for you?

Larry Katz (President)

Yeah, that'd be great.

Nicolaas Vlok (CEO)

Okay. We continue to—

Operator (participant)

Hello everyone, this is the operator. I apologize for the inconvenience.

Nicolaas Vlok (CEO)

Oh, can you—I'm sorry, we were muted here. I answered the question to myself.

Andrew Schmidt (BP&A Lead Analyst)

I can hear you now. No worries.

Nicolaas Vlok (CEO)

Okay. Did you hear anything I said, or do you want me to start at the beginning, Andrew?

Andrew Schmidt (BP&A Lead Analyst)

No, it cut out when you started talking. See if you could repeat what you said, that'd be great.

Nicolaas Vlok (CEO)

Okay.

We had a great back half of the year in terms of pipeline build, but also in sales momentum, and we continue to see that momentum continue into the 2025 year, and our expectation is this will continue to be very similar in the first half. We are seeing great success with our cross-sell initiatives, specifically the momentum is building around mortgage for us, and then some of our other modules on our platform. Specifically, as we think about kind of what's next and what's happening in our business from an opportunity standpoint, what we're hearing from customers and new prospects is folks are looking at making investments, especially where it helps them grow and helps them find new customers. From our perspective, growing pipeline means we are in lockstep with our customers that's leaning into grow members, to grow clients, grow deposits.

We're pretty excited where the pipeline's at and where it's going.

Andrew Schmidt (BP&A Lead Analyst)

Got it. Thank you so much, Nicolaas. Appreciate the response.

Operator (participant)

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

Saket Kalia (Managing Director)

Hey, it's Saket from Barclays. Thanks for taking my questions here. Nicolaas and Larry, maybe for you, can we just maybe go one level deeper just into that core consumer LOS business? I think the growth there was about 9%, which is good to see. It's healthy. Maybe the question is, how do you feel about the growth drivers in that business if you peel back the onion and the potential to sustain that growth in the future?

Nicolaas Vlok (CEO)

Saaket, thank you. Great question. I think I'm going to speak—Larry has lost his voice, so he's waving at me with answers and numbers.

We're pretty proud of the 9% consumer lending growth. If you just, to use your term, peel back the onion, it was driven by solid ACV release in the setting we're in. We are in a challenging macro environment, and today we control what we can control. We keep selling more. There's customer demand for our product, our platform. As we kind of land that and cross-sell and accelerate a new logo motion, we feel that, and we believe that we can sustain the growth in that segment of the business. The demand is there, as well as the team is set up to continue to release ACV at the pace that we're doing it today.

Saket Kalia (Managing Director)

Got it. That's very helpful.

Maybe for my follow-up for you, Elias, I know you said we're not going to talk about sort of new metrics here, but I was wondering just as an update, how do you kind of think about the different consumer loan types as a percentage of that LOS business? I think in the past, maybe we've heard about sort of rough percentages coming from the overall auto loan market or used auto market. Is there any detail you can give us just as we look back at 2024 in terms of the different loan types and how they contributed?

Elias Olmeta (CFO)

Yeah, I will be happy to, I guess, give an update as it relates to a couple of the loans in the consumer auto. Auto is, of course, roughly half of the single largest category within our consumer LOS.

Within that, you break that down, and roughly two-thirds of that is used, and one-third of that is new. More exposure, obviously, to the used car market. Our non-asset-backed product categories, credit cards and personal loans, are about a quarter. The remainder obviously makes up the balance of what is in consumer. Just by way of update, that has not been shifting in any appreciable way.

Saket Kalia (Managing Director)

Got it. Super helpful. Thanks, guys.

Operator (participant)

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

Matthew Kikkert (Equity Research Associate)

Hi, this is Matthew Kikkert. I am for Parker. Thank you for taking my questions. To start, could you talk about your recent partnership with Zest AI? I am curious what they are bringing incrementally to the table for you, and then also maybe some broader thoughts on your fraud product lineup and opportunity in 2025.

Nicolaas Vlok (CEO)

Sounds good. This is Nicolaas again.

Two questions, Zest and call it fraud. Zest has been a great partner in the marketplace for our customers and partnering with us. They're one of our, what I would call, AI decisioning partnerships that bring value to our decisioning engine. We've integrated them pretty deeply into our platform. It's a pretty deep and wide integration with our customers. The benefit is the customers have the ability to move to the next level of enhanced and automated decisioning if they choose to do so. Zest has been one of our foundation partners in bringing kind of an AI approach to the platform and decisioning. In terms of fraud, we continue to find high interest in the fraud landscape. We have a number of partnerships there, for example, Socure and also on the Experian side.

Our customers continue to lean in, and they would like to move it more front of house. It's not just fraud on the lending application, but it's also fraud on when you onboard a new deposit and a new account. We continue to invest. We continue to expand. Also, great partnerships with some real industry leaders on the fraud side.

Matthew Kikkert (Equity Research Associate)

Thank you for that feedback. In your capital allocation strategy comments, you mentioned M&A second before share repurchases. Do you have any comment on maybe particular areas of the business or the market that you would be looking to strengthen through M&A?

Nicolaas Vlok (CEO)

Parker, can you just repeat the question for a second?

Sure. In the capital allocation comments that you made in the prepared remarks, you mentioned M&A is the second priority before share repurchases.

I was curious, maybe is there a particular area that you'd be looking to make any M&A, whether it's in the near to midterm, that would strengthen your business?

Yeah, great question. You may get a winded answer from me. We think of M&A in kind of a few different vectors. One is continue to expand the platform and continue to look at what I would call tuck-in acquisitions that build out the platform breadth and depth and give our customers that ability to work with a single vendor. That's a strong message we're getting from our customer bases. They want to work with less vendors, and they would like to have a single hand to shake and a single neck to break. Consolidating what is a great fit into our platform is something that we're spending quite a bit of time looking at.

We have invested in capacity and also building out our M&A muscle in the company under Elias's leadership, call it over the last three, four, five months. We are seeing quite a bit of activity evaluating opportunities in that area. It is from kind of inbounds from bankers, from us going out into the market, as well as getting deeper into, call it what I would call our partner marketplace, where we have some tight integrations with partners. There is also great opportunity for us to build adjacent to our platform into areas that I would say is a natural short-arm extension, and we are also evaluating that. Lastly, I would kind of say there is transformational that you always need to take a look at, but it is something that we would do if it truly makes sense from a strategy and growth perspective.

Otherwise, you should expect us to be more focused on building platform capacity through tuck-ins and very near adjacencies.

Matthew Kikkert (Equity Research Associate)

Okay, thank you very much.

Operator (participant)

Thank you. As a reminder, if you wish to ask a question, please press star one. Your next question comes from Alex Scar from Raymond James. Please go ahead.

Hi, this is Jessica on for Alex. I just want to congratulate you on a great quarter, and also just want to double-click on NRR. It's impressive to see the improvement in NRR you have, also, of course, part of being a strong fourth-quarter bookings. I was kind of curious about what are some of the drivers and factors you're seeing for this improvement, and how sustainable do you see these factors being going forward? Thanks.

Elias Olmeta (CFO)

All right, thanks. A couple of things happening as it relates to NRR. Larry and Nicolaas made reference to these.

One is, obviously, we are growing our bookings, and we had a very strong ACV release year. On top of that, if you look at our customer counts, our customer count, while coming down, it is coming down across a segment of very small customers. That is pushing our NRR upwards. As we head into 2025, I certainly think that is sustainable, and they're going to be growing as we continue to work on releasing ACV. To the extent that there is volume, there could be upside to that. Those are really the drivers of our NRR.

Got it. Just like a really quick follow-up, do you kind of see churn as maybe having peaked already, or do you still have more of a holding position on the situation as to whatever develops in the macro environment?

Yeah, it's going to be obviously, the macro impacts it. We're watching that very carefully. What I would point you to is, I guess I'd make a few comments. One is that churn, as it relates to consumer, we think is roughly where we would expect it to be. Mortgage rate remains slightly elevated. As we head into 2025, you see the flip in our mortgage lending business declining, sorry, changing, excuse me, flipping from negative seven to about eight. That is really just a function of the fact that, amongst other things, churn is going to be diminishing, as well as there were some one-time items that we lapped in Q4 of 2023.

Got it. Thank you.

You're welcome.

Operator (participant)

All right. There are no further questions at this time. Ladies and gentlemen, today's conference call has concluded. Thank you for your participation.

You may now disconnect.