Revenue Streams and Segment Performance
Lending software revenue grew 10% year-over-year, accounting for 82% of total revenue. Consumer lending was a standout performer, rising 11% and contributing 90% of lending software revenue, driven by auto lending volumes and a one-time demand pull-forward ahead of tariffs. Mortgage lending revenue increased 7%, benefiting from improving churn and refinancing activity. Key metrics for the lending business included total lending ARR of $204.7 million, a 7% year-over-year increase, and a net revenue retention rate of 106%, the highest since Q2 2023. On the other hand, Data Verification Software (DVS) revenue declined 15% year-over-year, impacted by a 28% drop in mortgage-related revenue, primarily due to a large customer down-sell.
Profitability and Cash Flow
Adjusted gross profit was $60.4 million, with a 74% margin, and adjusted EBITDA of $34.8 million reflected improved operating leverage. Operating expenses were $26.7 million, a 1% year-over-year increase, with R&D, sales and marketing, and G&A expenses at 10%, 11%, and 12% of revenue, respectively. Cash flow from operations was $42.4 million, representing 52% of revenue, and free cash flow was $40.6 million, or 50% of revenue. The company ended the quarter with $128.9 million in cash and equivalents, up $36.1 million from Q4.
Guidance and Strategic Focus
Management provided 2025 guidance, anticipating total revenue between $326 million and $334 million, a 3-6% year-over-year increase. Adjusted EBITDA guidance is $131.5 million to $137.5 million, with margins around 41% at the midpoint. The company remains focused on innovation, customer success, and long-term strategic initiatives. Larry Katz outlined three strategic pillars: expanding the product portfolio, enhancing customer experience, and strengthening talent. The hiring of Troy Coggiola as Chief Strategy Officer underscores the company's commitment to driving product innovation. CFO Elias Olmeta highlighted increased bookings, strong cross-sell momentum, and significant customer wins, including a $8 billion asset bank adopting MeridianLink Mortgage and Solarity Credit Union streamlining 13 mortgage products, reducing processing time by a third.
Customer Success and Innovation
MeridianLink's annual user conference, attended by over 1,300 participants, showcased product enhancements such as secondary account applications and new integrations, generating substantial pipeline and stronger customer relationships. The company's investments in lending process innovation and go-to-market strategies continue to pay off, with a focus on digital interfaces, automation, partnerships, and AI. As Nicolaas Vlok emphasized, "Our ability to modernize and scale our offerings positions us as a key player in the financial technology space."
Challenges and Valuation
While the company faces challenges such as declining DVS revenue and potential headwinds in auto lending due to tariffs, the improving mortgage demand and low churn rates provide a positive outlook. From a valuation perspective, MeridianLink trades at a P/S ratio of 4.21 and an EV/EBITDA of 23.25, reflecting its growth prospects and strong cash flow generation. The free cash flow yield of 6.75% highlights the company's ability to generate significant cash returns, supporting its "Rule of 50" aspirations of balancing revenue growth and profitability. Larry Katz expressed confidence in the company's ability to execute on its buy-build-partner strategy, with a disciplined approach to M&A and a focus on tuck-ins and near adjacencies.
