MeridianLink Inc., the Costa Mesa-based company that provides software to credit unions and small banks, sees both bright and cloudy spots ahead.
It was the moderately lowered guidance that most likely pushed the company’s share price down by more than 25% on Aug. 2, the day after it released second- quarter earnings.
MeridianLink said second-quarter revenue grew 3% year-over-year to $75.4 million while it pulled back on its outlook for the full year.
The company is now calling for 2023 revenue to be between $302 million and $306 million, down from an earlier forecast range of $307 million to $313 million.
“We continue to see pressure on lending volumes as anticipated,” CEO Nicolaas Vlok told analysts shortly after the earnings release.
MeridianLink is banking on smaller financial institutions using the company’s high-tech lending and other digital offerings as a way to keep up with larger institutions and fintechs threatening to take away their customers.
The company provides cloud-based software for credit unions, regional banks, mortgage lenders and specialty lending providers. It helps some of the largest credit unions in the country set up digital lending and deposit accounts, among other services.
‘Strong Demand’
“We continue to experience strong demand for our software solutions despite economic uncertainty,” CEO Vlok told analysts during a conference call on Aug. 1.
The following day, shares dropped 25% to $16.83 apiece, 5% below their level a year ago.
The shares have since regained some lost ground, closing at $17.68 apiece on Aug. 3.
The market cap was about $1.5 billion as of last week.
While sales grew 3% in the second quarter that ended June 30, the result marked a slowdown from the prior quarter’s 6% increase.
CEO Vlok highlighted “solid bookings momentum and successful services delivery,” as bright spots for the period.
“We continue to see healthy demand for the MeridianLink One platform, demonstrated by the business highlights in the quarter,” Vlok said.
MeridianLink lost money overall in the second quarter, with net a net loss of $5.2 million for the three-month period, after a profit in the same period a year ago.
MeridianLink’s projected revenue of $76 million to $78 million for the current quarter may miss analysts’ estimates of $78 million.
“Interest rate levels are ultimately what drives our transaction-based business model,” Vlok said.
Last month, the Federal Reserve announced another quarter-point hike in interest rates, with U.S. rates now up 5.25 percentage points over the past 18 months.
MeridianLink is now expecting 2023 adjusted profit (EBITDA) of between $104 million and $108 million compared to the prior forecast of between $109 million and $115 million.
“It’s no surprise that the stock would see pressure from this downgraded sales and earnings outlook, even though the changes were modest,” investor website
TheMotleyFool.com said the day after the earnings release.
Investment banking firm Stifel raised its price target for the company after the earnings release from $16 to $19, and maintained its hold rating. Raymond James maintained its outperform rating, with analyst Brian Peterson expressing a positive outlook and raising the price target to $26 from $20.
Year-to-Date Gains
When MeridianLink went public in 2021, the shares soared higher than $28 each and hovered around a $2 billion market cap. Despite the recent decline, MeridianLink’s shares are still up more than 30% year-to-date.
The company now has more than 2,000 customers, while its headcount topped 700 people last year.
Customers include the Los Angeles Federal Credit Union, American Heritage Credit Union and F&M Bank.
Tim Nguyen, the company’s chief strategy officer, received a 2021 Business Journal Innovator of the Year Award.
Nguyen was born in Vietnam and lived in a refugee camp for six years in the 1980s before eventually landing in Huntington Beach where his great-aunt sponsored his family.
After graduating with a bachelor’s degree in information and computer science from the University of California, Irvine in 1998, he co-founded MeridanLink.
