Q4 2023 MeridianLink Inc Earnings Call
Participants
Gianna Rotellini; IR; MeridianLink, Inc.
Nicolaas Vlok; Chief Executive Officer; MeridianLink, Inc.
Sean Blitchok; Chief Financial Officer; MeridianLink Inc
Alex Sklar; Analyst; Raymond James
Chris Maloof; President, Go To Market; MeridianLink, Inc.
Matt VanVliet; Analyst; BTIG
Scott Wurtzel; Analyst; Wolfe Research, LLC
Chris Kennedy; Analyst; William Blair & Company, LLC
Saket Kalia; Analyst; Barclays Capital, Inc.
Koji Ikeda; Analyst; Bank of America
Andrew Schmidt; Analyst; Citigroup Inc.
Parker Lane; Analyst; Stifel Financial Corp.
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to MeridianLink's Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode after the speakers' 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 your first speaker today, Gianna Rotellini. Gianna, please go ahead.
Gianna Rotellini
Good afternoon, and welcome to MeridianLink's Fourth Quarter Fiscal Year 2023 earnings call. We will be discussing the results announced in our press release issued after the market close today. With me today are Meridian lending's, Chief Executive Officer, Nicolaas Vlok; Chief Financial Officer, Sean Blitchok; and President, Go To Market, Chris Maloof.
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 a 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 during the call. We will also refer to both GAAP and non-GAAP financial measures so you can find a reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted to the Investor Relations section of our website. With that let me turn the call over to Nicolaas.
Nicolaas Vlok
Thank you, Gianna, and good afternoon, everyone. It's great to having all of you join us today. 2023 was another successful year for MeridianLink. We executed well on our strategic initiatives set in the beginning of the year that were designed to serve our customers with greater efficiency. As a result, we generated strong demand finishing the full year with software bookings exceeding the record we set in 2022, and we made great progress releasing ACV from our new logo and cross-sell wins we also had a fantastic year of innovation with multiple product launches and partnerships to strengthen the capabilities of Meridian link one with the dedication and expertise of the entire modeling team we continued to deliver on our commitments to our customers and stockholders.
Turning to our results for the fourth quarter, our GAAP revenue grew 6% year over year to $74.6 million with an adjusted EBITDA margin of 42%, exceeding the top end of our EBITDA guidance. Our performance in the quarter demonstrates our ability to execute in key strategic areas of the business that accelerate growth while also demonstrating cost discipline remains our goal to help customers navigate an evolving operating environment and outcompete for consumers by providing a personalized, frictionless lending experience.
With that, let's move to our Q4 updates on the three areas of growth acceleration that are anchored to our platform strategy. First, engaging more deeply with customers Second, expanding the capabilities of the platform, and third, empowering customers to grow more quickly and better serve their communities.
Starting with customer engagement. Our go-to-market team achieved another strong bookings quarter with multiple high-value platform wins. The foundation we have set over the last few years to build and operate an efficient and high-performing go-to-market engine continues to drive growth.
As I mentioned we had record software bookings for the year, which was fueled by the cross sell momentum of Meridian link won in Q4, we signed nine consumer lending customers to our mortgage lending solutions. This is an excellent signal that our platform strategy and go-to-market is working mix. We wanted to highlight a couple of high value deals that we landed in the quarter that demonstrates the ongoing demand for Meridian link.
One, the majority of our high-value deals are often with new customers signing on multiple modules, understanding the value of connected solutions that cater to nearly all consumer lending needs. For example, one of our more significant ones at just under $500,000 in ARR. was a 1.4 billion AUM customer who signed on for Meridian in consumer modules and our new point of sale solution that launched last quarter. Meridian Brick access the customer chose Marin linked one to lend through a digital channel, achieved greater automation and improved efficiency in decisioning and cross-selling.
Another high-value one at just under $300,000 in ARR was with the 300 million AUM customer who selected Meridian link home equity and indirect lending based on the decisioning capabilities of Meridian link one. This customer also chose our in-house implementation services, which involves close collaboration to achieve specific results such as loan volume growth and increase productivity. This is a great example of how the Meridian link team is dedicated to engaging with customers from the initial sale through implementation to accelerate growth.
On that point, I would like to provide an update on the strategic investments we have made in talent and process improvements in our services organization over the last year. First, we are making progress releasing ACV in Q4. Total SaaS ACV release was the highest in the year. Second, we are becoming more efficient in releasing ACV. This progress is clear in our adjusted gross margin expansion in Q4, which was more than 400 basis points higher year over year last, we look forward to one of the biggest opportunities for engagement at our commodity linked live forum at the end of April in national, we can't wait to showcase our index capabilities that help customers achieve their digital transformation goals.
Most importantly, Meridian link live will create valuable moments of engagement and feedback that we can use to enrich our strategy and create additional value for customers and stockholders. These are just a few examples of how we engage more deeply with customers to accelerate growth for the business in the quarter.
Looking to 2024, our go-to-market team is hyper-focused on engaging with more prospects from new logos to cross-sell. And our services team remains committed to bringing customers live faster. Moving to a second area of growth acceleration, expanding the capabilities of the platform through product innovation and partner integrations.
Critical to our sales motion. We are focused on fine tuning that at EnLink one to drive our customers' digital lending strategy over the last few years, we have invested in R&D to achieve significant technological Strides, such as migrating to the public cloud and integrating multiple acquisitions. While we have accomplished these development goals, innovation is an ongoing commitment that keeps us in our market-leading position, and we remain focused on increasing the value of the platform for customers.
Now let's review how we expanded our capabilities. In Q4, we integrated Meridian link, engage with Meridian and collect to automatically identify and cater to pre delinquent accounts. Through this functionality. Our customers can work with consumers to optimize the debt wallet and avoid delinquency in today's digital environment, consumers largely prefer handling banking and collection tasks through user-friendly technology instead of in-person interactions. This new integration is a great example of how the end-to-end capabilities of Meridian link one cater to the evolving lending needs of the consumer.
We also enhanced our existing integration with GSI, a leader in automated underwriting to provide multiple custom credit score for decisioning and Meridian in consumer loans was more custom score options. Our customers can increase their cross-sell opportunities. In addition to the automation and insights available through the Meridian link one infrastructure. We leverage AI from our partner network to automate the learning process for customers ending on an expansion within our data verification software solutions.
We scaled our employment screening and background verification capabilities by partnering with Mercato, the leading enterprise automation platform through Ocado, we can accelerate the addition of new applicant tracking systems or ATS integrations to capture new employers to our CRA customers to service with more ATS integrations, the more volume and revenue we can process through our platform.
Before moving to our next focus area, I'd like to provide an update on the traction that our Meridian link access launch has achieved so far in 2023, we signed more than 40 customers in total on Meridian access and Meridian link mortgage access. This is an outstanding achievement by our go-to-market and product teams and is a great example of how we are innovating to generate more demand for the Company product and partner update in Q4. Just a few ways. We are continuously improving the borrower experience to help customers capture and retain more demand for their lending solutions in turn increasing revenues from ReadyLink.
Finally, our third area of focus for growth acceleration centered around our ability to empower customers to compete, grow and succeed in the markets in which they participate. We've been successful in empowering our customers to capture a greater share of a client's data wallet through Meridian link.
One. This highlights a critical component of our platform strategy. The ability to increase the module penetration with our existing customer base, which ultimately increases the LTV of the customer starting of strong cross-sell wins in the quarter, an existing already linked consumer customer with three modules added a fourth module ReadyLink access and enabled DealerTrack eContracting through our partner marketplace, both announced in Q3 with lending capabilities designed for configurability and automation, but customer improves the digital journey for the consumer.
In this example, our sales team worked with the customer on a renewal that empower long-term growth by capitalizing on our roadmap, further increasing the value of the customer for Meridian link. We also signed an existing Millennium in consumer and opening customer onto out select and engage solutions to expand the use of Meridian link one this customer's main focus was on finding connected learning solutions for serving a growing demand environment. This points directly to our value proposition of providing customers with a platform designed for scaling through digitalization tailwinds.
Let me end on a successful go-live story. We recently announced a plus favorable created union, an existing but annealing consumer and mortgage customer with over 190,000 members and more than 2 billion in assets under management going live on Meridian link consulting, Engage and Insight. Over time, A-plus ACU has gone from using six disparate loan origination platforms to now only using Meridian link one through our platforms advanced decisioning capabilities. A-plus Federal Credit Union doubled their instant approval rate on consumer loans.
This site primarily only one success story where a customer further optimizes the lending process to approve loans faster and the move workflow efficiencies, improving the member experience. As a result, before handing the call over to Sean, I want to emphasize that Meridian link deliver consistent top line growth and expanding profitability levels through a year of restructuring and strategic investing to support future scaling.
We have a track record of intentional capital allocation, investing organically and inorganically in areas that provide value to customers and stockholders to set the stage for 2024, we have made strategic investments that we expect will propel the company forward. We are focusing on what's in our control, which includes accelerating ACV release and generating demand. We've also worked to tee up a strong customer success strategy to empower the customer growth journey through Meridian link.
One Thanks again to the team. Their focus on empowering our customer success is a driving reason that Meridian link continues to deliver strong performance. I'm looking forward to seeing what we can accomplish together this year, but that I will now turn the call over to Sean to talk about our financial results and guidance.
Sean Blitchok
Great. And thank you, Nicolas. Before diving in, I'd also like to take a moment to highlight the phenomenal teamwork and execution demonstrated in the quarter. The team has remained steadfast in serving customers with best-in-class services and support to position their businesses for growth.
Turning to our financial achievements in 2023, Veridian link had an impressive year of profitable growth, supported by consistent cost discipline, a great achievement in the face of the challenging macroeconomic conditions, we have aligned our cost structure to support future scaling and to expand profitability going forward. We also strategically deployed our capital through stock repurchases to generate value for our stockholders.
In terms of our key performance indicators, we continue to refine our internal processes and external disclosures to better represent the underlying drivers of our performance.
On that note, I want to highlight our resilient annual recurring revenue or ARR and net retention metrics in the quarter. We finished Q4 with ARR of $257.5 million and the net retention rate of 98%. Specifically, however, our lending software solutions finished the year even stronger with a net retention rate of 101%.
Excluding the impact from mortgage volumes, the net retention rate of our consumer lending revenue was 103% primary drivers of our net retention rate are cross-selling additional modules, volume growth and price increases. There is stability in our retention rate due to how sticky our customer base is the more customers use our platform to automate and integrate their lending processes lower the probability for churn.
As Nicholas mentioned in his remarks, we also finished another quarter with an impressive roster of new logo wins. In the fourth quarter, we had 1,996 total customers using our software solutions. On an organic basis, total customers declined 2% year over year.
While there has been increased churn from lower value mortgage related customers as a result of financial distress, we view this as an optimization of our customer base. As the market normalizes, we focus our go-to-market market efforts on sticky depository customers. We expect to see an improvement in new logo going forward to understand how these metrics have trended over time and by solution type, please reference the financial supplement made available on our Investor Relations website.
Shifting focus to our fourth quarter financials, we generated total revenue of $74.6 million, up 6% year over year, driven primarily by the resilience of consumer lending transaction volumes and increased product go-lives from both new and existing customers. Breaking down software solutions, our total lending software wrap revenue accounted for nearly 80% of total revenue and grew at 8% year over year
. As the primary driver of our lending software solutions, non-mortgage lending revenue contributed 87% and grew 5% year over year. Mortgage related revenue within lending software solutions accounted for the remaining 13% of the total.
Turning to data verification, software solutions. Revenue from those solutions accounted for nearly 20% of total revenue and declined 3% year over year. This was driven by a 6% decrease in mortgage related revenue, which represents 56% of total data verification software solutions for Q4.
In Q4, total mortgage related revenue was up 9% from last year and generated 22% of overall Meridian link revenue, driven by the uplift from open closed, which we acquired in November of last year.
Now transitioning to profitability. GAAP gross margin was 66%. Adjusted gross margin in Q4 was 74%, representing a 400 basis point improvement year over year, driven by increased productivity of our services team and technology side.
Before reviewing our operating performance in the quarter, I'd like to break down the year-over-year changes in our operating expenses compared to the fourth quarter of 2022, G&A increased 1% on a GAAP basis and decreased 16% on a non-GAAP basis. R&D declined 12% on both a GAAP basis and non-GAAP basis compared to the fourth quarter of '22.
On a GAAP basis, sales and marketing increased 34%, while on a net non-GAAP basis, sales and marketing increased 29% compared to the fourth quarter of 2022. The changes across our non-GAAP operating expenses were primarily driven by rebalancing headcount and increased compensation costs to fuel our continued go-to-market efforts, we are selectively investing in talent to support our growth while ramping down spend in other areas like R&D, now that we've completed significant technology projects such as the migration to the public cloud.
Now moving to our overall operating performance. GAAP operating income was $6.8 million and non-GAAP operating income was $15.2 million. On a GAAP basis, net loss was $29.6 million or negative 40% margin, which includes a onetime noncash tax expense of $29.4 million recorded in the quarter for the recognition of a valuation allowance on certain deferred tax assets.
On a non-GAAP basis, adjusted EBITDA was $31.1 million, representing a margin of 42%. This represents an improvement of nearly 900 basis points on a year over year basis, driven by work to optimize our cost structure. The majority of this adjusted EBITDA beat was structural and demonstrates our strong cost discipline, which we can plan to continue this year.
Now pivoting to the balance sheet and cash flow statements. We ended the fourth quarter with $80.4 million in cash and cash equivalents, a decrease of $17.1 million from the end of the third quarter, driven by stock repurchases. Cash flow from operations was $12.5 million or 17% of revenue, and free cash flow was $9.6 million or 13% of revenue for the fourth quarter.
Now let's look at full year 2023 results. Overall, we anticipated the credit tightening that happened across our consumer base and executed well on our scaling initiatives to counter the deceleration in volume growth as we have seen in past cycles, our customers stayed resilient in a challenging operating environment and made the strategic decision to purchase our solutions, which are designed to help accelerate growth with continued demand and our ability to take customers live faster drove our performance.
For the full year 2023, we generated total revenue of $303.6 million, up 5% year over year.
Breaking down our revenue growth by software solutions, our total lending software accounted for nearly 76% of total revenue and grew at 11% year over year. As the primary driver of our lending software solutions, non-mortgage lending revenue contributed 88% and grew 6% year over year. Mortgage related revenue within lending software solutions accounted for the remaining 12% of the total.
Turning to data verification, software solutions. Revenue from these solutions accounted for nearly 24% of total revenue and declined 10% year over year, which was driven by an 18% decrease in mortgage related revenue, which represented 59% of total data verification software solutions in 2023. In 2023. Total mortgage related revenue was up 5% from 2022 and generated 23% of overall Meridian link revenue driven by our lending solutions.
We are seeing volume recovery in the mortgage market. However, we still expect it to take time for customers to grow above their minimum commitments. Such that volume will drive revenue growth as that recovery continues we're staying focused on what we can control our platform strategy of cross-selling mortgage lending to our consumer lending depository customers continues to be successful as demonstrated by the go-to-market wins that Nicholas discussed.
The other 77% of our business continues to grow, which is primarily led by the demand from our existing customers for our suite of end and consumer lending capabilities. That brings me back back to the power of the platform, routinely one caters to the evolving lending needs of the consumer as customers add-on modules that are primed to grow even in the most challenging lending environment, which in turn can create increase the revenue opportunity for Meridian link.
Transitioning to profitability, GAAP gross margin was 64%, 2023. Adjusted gross margin was 72%, representing 100 basis point improvement year over year, driven by increased productivity of our services team and technology stack.
Before reviewing our operating performance in 2023, I'd like to break down the year-over-year change in our operating expenses. G&A increased 12% on a GAAP basis and increased 5% on a non-GAAP basis, R&D increased 12% on both a GAAP basis and a non-GAAP basis. And on a GAAP basis, sales and marketing increased 51%. While on a non-GAAP basis, sales and marketing increased 48%.
Growth across our non-GAAP operating expenses demonstrates our commitment to our previously discussed investment in go-to-market and scale initiatives. We believe we now have the necessary infrastructure in place to support future scaling and expect to accelerate top line growth as we generate more demand with an industry-leading suite of solutions and partner capabilities for our overall performance.
GAAP operating income was $15.5 million and non-GAAP operating income was $51.1 million. On a GAAP basis, net loss was $42.5 million, or negative 14% margin. And on a non-GAAP basis, adjusted EBITDA was $113 million, representing a margin of 37%.
Onto the balance sheet and cash flow statement. Cash flows from operations were $68 million or 22% of revenue, and free cash flow was $57.8 million or 19% of revenue for the year. We continue to generate funds that can be used to invest in the business, pursue acquisitions deleverage. We repurchased stock under the repurchase program that our Board authorized earlier this year.
Before moving to our guidance for the year, I want to provide an update around our internal controls as previewed in our eight K filing on February 6, this year, and noted in the earnings release issued today. Although the assessment is still ongoing after working diligently with our auditors, we expect to report in our upcoming 10-K, a material weakness related to controls over revenue, specifically regarding customer contracts and billing, there has been no restatement of prior period financial statements.
No change to previously reported financial results, and we do not expect any change to the expected timing of our 10 K as we continue to mature as a public company, we've been highly focused on improving our control environment for increased resourcing and audit processes and scrutiny. The Company has uncovered additional areas for improvement. We believe we have the right remediation in place to address these deficiencies. Those remediation efforts have been and remain underway.
I'll now pivot to guidance for Q1 and initial guidance for the full year 2024. As we saw last year, interest rate levels related credit tightening and consumer sentiment are just some of the main drivers of the loan volumes that our customers capture through our software solutions until we see the market respond to a substantial change in these drivers. We expect our customers to continue operating in a challenging credit environment. As part of our comprehensive forecasting process, we incorporate external industry data points, and we will update our expectations accordingly as there's increase in certainty around the lending environment going forward.
Aside from volumes, there are additional performance drivers in our control that we have strategically invested in to accelerate growth we will continue to prioritize capturing new logos and cross-sell opportunities, accelerating our ACV release and innovating merging link one to meet the evolving consumer lending needs that exist today.
For the first quarter estimated total revenue is expected to be between $75 million and $78 million compared to $77.2 million for the same period in 2023, which represents an estimated year-over-year change of negative 3% to 1%. For the full year 2024, we expect total revenue to be between $313 million and $323 million compared to $303.6 million for the same period in 2023. This represents an estimated increase of 3% to 6% year over year.
For mortgage related revenue, we expect the mortgage market to contribute approximately 20% of revenue for the first quarter of 2024 and expect to end the full year 2024 around the same percentage, provide more color around the drivers of our total revenue. The mortgage-related revenue guide represents a decline year over year because we expect that it will take time for the recovery in volumes to push our customers above their committed minimums and therefore, impact revenue growth.
On the non-mortgage side, we expect modest growth year over year in data verification revenue as the employment screening market reaction to the economy. Normalizing understanding both of these dynamics, we expect consumer lending will drive momentum in 2024. While industry sources are signaling continued headwinds impacting the used auto market, we plan to continue winning new customers and cross-selling other consumer loan types through merging link one.
Now focusing on the adjusted EBITDA guide. On a non-GAAP basis, first quarter estimated adjusted EBITDA is expected to be between $28 million and $31 million representing presenting adjusted EBITDA margins of approximately 39% at the midpoint. For the full year 2024, we expect our adjusted EBITDA range to be between $123 million and $130 million dollars, representing adjusted EBITDA margins of approximately 40% at the midpoint.
Our adjusted EBITDA guide reflects our continued commitment to operating discipline in areas that we do not believe contribute meaningfully to growth acceleration. Really in 2024 represents an inflection point as our past strategic investments have built the foundation for growth and for future scale, we aim to optimize our cost structure to support incremental growth, which we expect will in turn drive margin expansion as volumes impact the bottom line with that I'd like to touch on how we are thinking about capital allocation going forward. While we continue to strategically repurchase shares, we are planning to reprioritize M&A as the market presents opportunities we want to be active in the M&A market environment with a focus on continuing to add value to our customers and stakeholders.
To wrap up, I'd like to very reiterate how resilient. The Company has been throughout a difficult operating environment. All thanks to a team that knows how to execute and put the customer first, something we've done for over 25 years, we will continue to prioritize our customer-centric scaling initiatives in 2024, resulting in expansion of organic growth and profitability.
With that, Nicolas, Chris and I are happy to take any of your questions and I'll turn it over to the operator.
Question and Answer Session
Operator
(Operator Instructions) Alex Sklar, Raymond James.
Alex Sklar
Great. Thank you, Sean or Nicolas, on your commentary around prioritizing the ACV release, I just would be helpful if you could help frame kind of how much backlog you have from bookings that aren't yet implemented today and how that kind of compares to the size of that bucket last year? Thanks.
Sean Blitchok
Thanks for the question. Sean. So as you well know, we don't disclose backlog, but I will say that backlog has been optimized as we've got. So with our new CCO, Dean, we look at backlog a little bit different. It's a good problem to have not a bad problem to have. I think we saw Q4 as the fastest ACV release from that that in my tenure at least have the highest is in the release, but a number that we've put up to date. So it's going very, very well and we continue to refine it.
And in the services space to go faster and to optimize the structure to eliminate inefficiencies. And so we have the backlog that we need to execute through FY24 from our selling motion continues to add to that backlog. And we I think you and I have talked about this before, but it's really about creating an equilibrium between sales in the door and getting them our customers up and running and ACV release going out the door. So we believe we have the right balance in '24. There's not too much capacity on the services side, we're not building backlog over a period of time. That's unmanageable. So we believe we have the right balance for 4Q '24.
Nicolaas Vlok
It's really about fine tuning it.
Alex Sklar
Okay. Got it. And Greg, great color there. And then maybe one just for Chris, just given the go to market growth we saw over the last 12 months, can you just talk about how the sales it looks now from a tenure and productivity standpoint relative to the last few quarters and then anything that's kind of embedded in the 2024 outlook from a productivity standpoint.
Chris Maloof
'Yeah, happy to say going back about a year. We talked we started to have the conversation about moving from an order-taking organization to a hunting organization. And we're well underway in that path that we saw last year is us working with the rest respective teams, up-leveling where possible and bringing in new talent that can go out and create that pipeline and take down new logos as well as cross-sell into our customer base. So we saw a lot of desire turnover last year and now many of those many of those sales representatives are still on their ramp, but they're moving up into a higher level of productivity. And we expect that that to flow through in '24 our.
Alex Sklar
Great.
Chris Maloof
Thanks, Alex.
Operator
Matt VanVliet, BTIG.
Matt VanVliet
Yes, thanks for taking my question, you gave us some details on some of the consumer lending areas. But as you look back on the year and maybe as you're projecting out the year ahead, where have you seen the most interest rate sensitivity? And then I guess baked in within that, what are your assumptions today for kind of where we end up from a Fed funds rate or something on that level, that sort of gives you indication that certain areas of the consumer lending might be stronger weaker throughout the year?
Sean Blitchok
Yes. Hi, Matt, Sean, thank you for the question. I mean to answer your first question, it's undoubtedly a mortgage that's been exposed the most now our business model, as you well know, does have minimum contractual commitments. And so our downside it was protected, but it is it is it has been the most sensitive in terms of volumes. It has been the most sensitive in terms of our MCL. business and DVS. And so so that's that's something that we're having to contend with for FY24 as well.
Now it's a story that's already turn turning around. So we are seeing mortgage volumes increase already, and we continue to think that that will continue to improve through through the year. It's just a matter of when do those volumes become accretive to revenue?
The consumer the consumer was impacted and continues to be impacted, but volumes have been healthy. If you look across the consumer portfolio, whether you're talking about account opening or credit card, personal loans, et cetera, that has really picked up the slack for auto. But as you know, as you know, this business very well um, we we don't see a ton of growth or upside without auto come in our at our total volume on package. So I think that's making good progress as well.
Tom, the new car inventories have recovered from the new cars, making them into the used car inventories is the part that that hasn't or is happening hasn't happened yet, but we are seeing downward pressure on the used auto market as well. So it is as we've been talking about for the last couple of quarters, it's just a matter of timing before the used auto market comes back. But the consumer really does or auto, it really does have to come back for us to see that's that, that growth in consumer that we would hope for.
Matt VanVliet
Okay, very helpful. And then obviously, we got a bit of an update in January, but curious as you as you think about on the go forward basis, talking about R&D probably coming down as a percentage of revenue. Where do you stand at in terms of headcount capacity there? And I guess more importantly, what are some of the people that that were focused on the migration and process? What are they being sort of repurposed to? And how should we think about that in terms of the product roadmap ahead?
Chris Maloof
First, I'd like to talk about what are one of the resources that were included in at least capacity perspective, what resources were included in the risk. If you look at the R & D plan over the last four years, five years spent largely focused on rebuilding the tech stack to be cloud native one. So it can be future-proofed for the next decade plus and then the second element was rewriting the code base on the user interface level, which is a another significant investment with those two completing.
That's the capacity we're talking about when we made the actions earlier this year. From a go-forward perspective, our goals remain largely the same. It's about what which aspects of our solution allow our customers to compete for consumers and that happens from a number of classes. One is how are we enabling the maximum automated decisioning.
So we had our advanced decisioning functionality that we continue to AutoPulse to on this, we delivered an aisle access, which should predict with us knows we sold approximately 40 over the last period. And then we continue to build on the interconnectivity between our platform and how it adds more value together than apart and has a number of examples in that that we highlighted. So one would be how we're connecting, engage our marketing automation solution to our collections solution. So we can enable our clients to create those bespoke experiences and ultimately win in the marketplace.
Matt VanVliet
Great. Thank you.
Sean Blitchok
Thanks, Matt. Appreciate it.
Operator
Scott Wurzel, Wolfe Research.
Scott Wurtzel
Good afternoon, guys, and thank you for taking my questions here. I'm just wanted to touch on some of the customer count dynamics of and I know you mentioned that you had some increased churn from lower-value mortgage customers. And just wondering if you're expecting any of that trend sort of continue through this year and if so, how long we might expect it to continue? And just sort of on top of that, I know it's probably affecting the retention rates? And just wondering sort of when that dynamic settles out, what kind of retention rate you're sort of starting as we move throughout the year?
Sean Blitchok
Thanks, Scott. So this is this quarter was was another quarter of a consolidation of the total customer count. I mean, it's a number that we need to see reverse. And I think we're almost at the tail end of what I've been talking about for the last quarter or two, which is bad financial distress on INB.s kind of in total, a shift from our go to market strategy is a ways away from that and more into the depository base customers that are going to be with us for a long period of time.
Now even given that our churn levels are not are not that high more still a very sticky business. And so we've allowed customers to walk away as opposed to some redesigning contracts as an example, that would be not not in our financial best interest, not to your question about timing, I would say we're largely through that. If you think about this last quarter, Q4 them.
We had a little over 2% in terms of customer churn. You know, over about about 1.5 of that was in the mortgage space. So you can think of it as we are. We're getting to the point where those are cleaned up and we're in a good spot. We did see a little bit of consumer churn down, but not not significantly. So I think it's a combination of and we're always going to see a little bit of churn. I mean, even the best companies in the world operate with a little bit of churn.
It's within striking distance. I think the total customer count it needs to be coupled with new logo and new the new logo piece. We feel really good about actually even though it doesn't show up in Q4's numbers and the pipeline is stronger than it's ever been. And we're seeing very minor delays in the sales cycle. But we really believe that 2024 is going to be a good year in terms of new logos. So that total customer count comes comes up on that four. If it's not next quarter, then I think next quarter will kind of bottom out, and we'll start to see the second half come come back up again.
Scott Wurtzel
Got it. That's super helpful. Thank you. And then just a quick follow up and talking about capital allocation. You mentioned that you're so kind of looking back at the M&A environment. And just kind of wondering if you can give us a little bit more detail on what you could be looking for in the environment. And, you know, if you've kind of gone out and started looking what you're kind of seeing from a bid-ask spread perspective relative to maybe the last two years? I think color on that would be.
Sean Blitchok
\Yes. So maybe I'll just preview just really fast we purchased a significant amount of it. Stock repurchased a significant amount of stock in 2023, Bob, and we have Board authorization to continue to do that and we will do that as the stock price presents that opportunity. So that's number one. I don't want to imply that that's we believe that the share prices continues to be at a very good value. And so we will continue to do that. But in the M&A market, I think you mentioned the bid-ask spread, I think for the overall market that are starting to close.
They're still not exactly where we would want them in terms of absolute value for us as Meridian link. But it's very situational, right, whether you're talking about our peripheral asset or you're talking about something upstream or downstream or new technology. I mean, I think it varies widely, but those conversations that that have been, you know, way way off the mark because of our cash burn or the investment that was made in X Y or Z company, I mean, you're starting to see kind of a realization that, okay. We're going to have to do something. And so there's a lot of really terrific assets out there in a very fragmented market. So we're looking at a lot of those right now. And I wouldn't be surprised if it was sooner rather than later four for us.
Scott Wurtzel
Got it. Super helpful. Thank you, guys.
Sean Blitchok
Yes, absolutely. Thank you.
Operator
Chris Kennedy, William Blair.
Chris Kennedy
Good afternoon. Thanks for taking the question. Nicolas, I think you talked about fine tuning Veridian link. One. Can you give a little bit more details and what you were referring to there?
Nicolaas Vlok
Yes, good afternoon, Tom. I think on the call, my fine tuning was in relationship to the services organization and unless I'm mistaken where the comment comes from it was when insurance spoke about our services business, making great strides working backlog down, we found a good balance and kind of 2024 is the year where we're going to improve our processes, documented better tools in the future, provide consulting companies, the ability to implement literally only one. And that's what I mean in the context of this call by fine-tuning. If if I'm missing, it feel free to expand on it.
Chris Kennedy
No, and I may have miss heard it. So thank you for that. And then just is there a way to think about what the revenue growth for this business can be? You guys have done a lot changing the go to market doing Veridian link one operating in a difficult environment. But as that environment normalizes, is there a way to think about what the revenue growth opportunity is for Meridian Link.? Thank you.
Sean Blitchok
Yes, thanks, Chris, for right now. And we have not we've not veered from our growth algorithm of 5% new logo, 5% cross cross-sell and 5% on price and upsell and I think that if you if you put that in the context of FY 23, but we performed well against the upsell component and the price component we saw maybe a little bit more churn than we would have hoped.
And new logo was was low. So I there are components that are some macro tied to the macro that are that are driven from and out of our control is out and not completely out of our control. But the things that we are, we took the kind of countercyclical approach and invested at a time where we knew we had the opportunity to do so.
So I do believe that this can at minimum be a 15% grower in the market from you on an annual basis. And I think that again, we're going to start to see new new logo come back. We've already got a cross sell and upsell motion that we believe in and as is happening on the delivery mechanism by which we take those bookings and turns them into revenue is getting faster and it's getting it's getting tighter so that that long lead time to revenue, it's getting tighter.
And so I think both of those are the things that we're focused on right now. The volume will come back. Some were of world class platform. I don't our customers don't leave us very often with. It's just we've they don't also control over the decisions, the buying patterns of the consumer. And so I think selling into the installed base, continuing to sell, creating extremely happy customer success oriented. Um, um, you know, motions from us building out the customer journey to expand and use more and more of our of our products is what we can control and what we're focused on now the volume components will come as we go now.
If anything, I would say, you know, as you look at the business in a more normalized environment and this this has the ability to probably grow more than more than 15%. But that does at this moment in time in this operating environment, I think it's still safe to use our compares against the 15 that we've stated ever since the IPO.
Chris Kennedy
Great. Thanks for taking the question.
Sean Blitchok
Yes, absolutely. Thank you.
Operator
Saket Kalia, Barclays.
Saket Kalia
Again, this is Ryan Todd, really on for a second here at Barclays. Thanks for taking the questions. Nicolas, maybe first for you, could you talk about the competitive environment in the consumer LOS business and whether that's changing at all with some vendors like and CNO talking about it a little bit more.
Nicolaas Vlok
Yes, happy to Ryan, Tom. We don't see much of a change in the competitive landscape and CNO or others, we tend to find folks have more of a single point message than us with a platform approach. And a platformization from what we have to offer is differentiated enough that we do not run into scenarios where I would say things have changed when rates have changed at all.
And specifically your question to NC, no, we don't see them much in our prospect or customer base. I don't know if you have anything to add there, Chris.
Saket Kalia
Yes, that's super helpful, Sean, even a follow-up for you some great detail on the product line expectations and your guidance. I'm just curious, can you help us understand the amount of contribution you're expecting from volume growth this year? And specifically in the context of what the MBA is forecasting for volumes, how much that factors into your expectations going into this full year? Thanks.
Sean Blitchok
And yes, I can. Thank you, Ryan. I think -- well, if you just take an external viewpoint, some are but the we we look at MBA, we look at Q2, we looked at all the external data points. Those have continued to shift and change. And to be honest, it's been it's been an interesting six months or so. And what I've learned is, you know, the closer you get to the actual period, the better they are at forecasting.
And so we have our own internal forecasting methodology that I think we would that incorporates those that route that we rely on more heavily. I do think that all things considered with everybody banking on a recovery or normalization in the last last year, it was the second half and that was H1 of this year and now it's half to finish this year.
But I don't know if I can answer that question, but I can say that where MBA is where tuna is around 4% for consumer. Mda has a slightly higher 17% for mortgage. But I will tell you that that's that's come down over the last six months. So the answer to your question is we've we've baked in what we're comfortable with in terms of consumer. We believe that mortgage is going to come back at a higher rate and the timing again of when that becomes accretive to revenue for us is the key story.
And then the other part of the story is when does the MCL component really get above above minimums and start to reflect the overall market. So those are the those are the three three data points.
And Proclear, yes, yes.
Chris Kennedy
Thank you for if you get a chance, just make sure that you remind socket that he owes.
Operator
Koji Ikeda, Bank of America.
Koji Ikeda
Hey, guys. Thanks for taking the questions. I wanted to ask a follow up on kind of understanding the contracts and the minimum commitments and how to think about and mortgage loan volumes that we might need to see in the market to kind of break out to maybe the overage level or what are we going to see the volumes out there? What sort of volumes would you have to meet need to see are minimum contract commitments to be yes, Koji.
Chris Maloof
So for mortgage in particular, you know, if you think about our total population of customers or let's take the population of revenue and not take it on a customer customer by customer basis. But also from a revenue perspective, we had approaching 90% of our revenue that was coming from contractual minimums.
Now that's not to say that 90% of our customers were, but it varies customer by customer. So the analysis that we've done is we will see probably a quarter two quarters of a pickup in the meta models for most of our customers, Tom, and then we'll start to see upside in the mortgage in the mortgage space.
So Bob, if you if you kind of go through the model for us. There's not a lot of upside in mortgage, even though the volumes are recovering in the front half. And we see we see some recovery in the back half of the year. So hopefully that's helpful.
Koji Ikeda
Super helpful. Thanks for that, Sean. And just a follow-up question here on the guidance and thinking about EBITDA margin on the guide there is just about 40% for a growth rate of 5% on the revenue side. So how should we be thinking about EBITDA margins in a better macro or lower interest rate environment that might drive higher loan volumes, would that incremental revenue growth flows down to the bottom line? Or is the business looking to reinvest that EBITDA upside? Thanks.
Sean Blitchok
Yes, thanks, Koji. I think it's it's probably a mix of both. But I would say for the most part, if you look at our gross margins, they continue to improve. And we've we've embedded that I think if you just at a high level, if we saw an incremental improvement from this guide and we would pass pass through some good good portion of that through to the bottom line. I'm not saying dollar for dollar, but I think you would you would start to I mean, the number the EBITDA guide is already very good in my mind.
And so and what I've said for awhile now is our next target, if you will, is to be rule of 50 company. And so as we start to accelerate, we that that's the next threshold and we're going to work to get to that threshold. I And at some level you have to sustain the business. Some of our products are on pay per transaction. And so you'll see cost of goods in them. And there are there are different instances where it won't be as easy as just falling dollar for dollar through to the bottom line, but it will be enough so that we can make a meaningful improvement in EBITDA as we see the revenue comes in. So hopefully that That's helpful.
Koji Ikeda
No, super helpful. Thanks, John. Appreciate the time.
Nicolaas Vlok
Thank you.
Operator
Andrew Schmidt, Citi.
Andrew Schmidt
It was Sean, Chris, thanks for taking my questions here. I appreciate all the detail, but I wanted to put a finer point on just at the net new side, specifically within lending software for depository institutions, which is, obviously, as you mentioned, kind of a higher RPU opportunity. I'm trying to disaggregate what's maybe cyclical from a buying patterns perspective versus what might be controllable and maybe you could talk about just what you see from a pipeline RFP activity and win rate perspective and maybe that could help us get a better sense on just the the what's building for net new adds and the situation there? Thanks a lot.
Chris Maloof
Yes, Matt, this is Chris. So if we look at the last two to three quarters, that's a win rates and the sales velocity have been largely consistent. And as we've built in our new capabilities, investing in marketing and our sales enablement, we're seeing ourselves in a superior pipeline position than we had done in the prior quarters. So we're making movement here and remain in flight and our transformation from quarter taking to market taking from a go-to-market motion perspective.
Sean Blitchok
And Andrew, I don't. I don't know that I think you used the word cyclicality from a buying pattern, and I don't know that I necessarily see them a logical pattern in cyclicality and buying behavior from we do see, depending on the economic cycle, depending on where financial institutions are financially that could perhaps delay or accelerate some sort of a pipeline build or some of the actual buying decisions, but I don't think there's inherently cyclicality that makes sense.
Andrew Schmidt
We just heard more focus on deposit gathering versus loan origination. But yes, I understood this to us get modernized and there's a lot of demand for it to mix.
Sean Blitchok
I understand your question. Are you right? I don't think there's there's a shift away from buying and into depositories or?
Yes, I think it's just a matter of both now and it does. I don't think that people have shifted shifted away from buying software as retooling, et cetera, even with the kind of shift the focus into taking more deposits.
Andrew Schmidt
Yes, very clear, more balanced. That makes a lot of sense. I appreciate that. And then on your it looks like the at the midpoint expense growth as overall expense growth is like flat to slightly up, which is pretty impressive. And obviously you have the cost actions you announced in you know, some the roll-off of some investments, but I guess the question is, you know, are there areas you could actually double down on in terms of investing, maybe accelerate investment investments you've done this, you know well, and with past couple of years, a pretty good job in terms of that's written, like one, et cetera. Are there other areas we could you know, we see incremental investments versus just dropping to the bottom line. Thanks a lot, guys.
Sean Blitchok
Yes, thanks, Andrew. I think the you know, I quoted numbers and the talk track I think sales and marketing is where we are doubling down. Last year, it was 80$, 90% growth year on year. This year we're 30%-ish to 40% growth in terms of sales and marketing expense. And we're self-funding that and through trade-offs in other places within the business. And we've got our hand or a handle on G&A.
We've got our handle on them in our discretionary spend. We we've tightened the belt and some where we are funding the things that we know we need to fund. But so from a from an income statement perspective, I feel pretty good and about again, foundationally, we're at the point of scaling them and as that top line starts to come back into some into shape into where we think the growth algorithm should be as the market starts to shake out, I think we'll be in a very good position.
Andrew Schmidt
Perfect. Thank you very much. And appreciate all the comments. Yes, take care. Thank you.
Operator
Parker Lane, Stifel Nicolaus.
Parker Lane
This is Matthew Kikkert, on for Parker.
Thanks for taking my questions.
And you mentioned you are shifting the go-to-market team into more of a hunting mentality now this year, how does the emerging like one platform fit into the strategy and does it help accelerate the strategy at all?
We're the only one.
Sean Blitchok
It's all centered around how we drive solutions for our customer base. And I think that in fact, effective hunting team is going out and understanding our customers' goals, our challenges and then positioning the company's solution to ultimately drive that outcome.
Submarine link one and the maturity models for the FIs that can derive from it on key aspects like digital maturity, decisioning insights and other is central to having an effective go-to-market motion. I really view it as all part of same story. But the sales team is a an arm of that story in all these to come together with one message to the customers.
Nicolaas Vlok
And if you look at some of the detail that we've announced in our script as well. So the customer wins with four modules plus access the cross-sell success of ML, more reach into the customer base the deposit-taking customer base, I think is really coming together well there.
Parker Lane
That makes sense. And secondly, are there any ways that you're looking to incorporate AI in your tools more in 2024, what are your what are you hearing from your customers in terms of ad demand from you and their budgets for it?
Sean Blitchok
And so I'll start with the demand question. It's a I within the financial services industry is really interesting in terms of there's a regulatory aspect to it, but there's also a consumer sentiment aspect to it. There's a perception in some consumer bases, at least in the research we've done on how comfortable or not comfortable they are with using AI to make decisions on their behalf. So those are some things we are we watch closely. What we've done to date is a lot of work with partners.
We're leveraging actually be T type tools from a customer service perspective. Our consumer service perspective, we leverage we have a number of partners that are using machine learning models for decisioning. And then what we've been doing internally from an R&D perspective is over the last few years, we've spent millions of dollars as part of our cloud design to bring all of our data into a single location. And as we're evaluating our FIs needs and their consumers with consumers, knowing that there are two areas that we're looking closely at are we leveraging an open eye type format to take our insights program to the next level.
So meaning we have a very unique offering that we can enable our customers to see how they're performing versus their peers on a larger array of different key performance metrics than we can. We can use a language model to present a narrative back and where they should focus their efforts to have the optimal outcome.
And then the other elements I think as a core use of any I taught us how are we automating key aspects of the lending Officer's role for them to be more efficient and new, candidly, over the last year, I've seen more and more rhetoric around IT investment around efficiency, which perhaps wasn't as true the years before that we think the key takeaway I'd say is the hardest part for an organization like us to perform in that market is to bring all the data and clean it and put in a single place. You then build models on top of.
Parker Lane
Terrific. Thank you very much. Thank you.
Operator
There are no further questions at this time, Mr. Nicholas block, please.
Nicolaas Vlok
Thank you for attending today's call. As we close, I'd like to express my gratitude to the team for their ongoing commitment to our customers, partners and each other great teams in a way that well, they serve customers in a way that stands apart and they deliver better experiences day in and day out. That's what we mean. That's well, that's what we that's why we remain focused on. And the industry continues to take note. In fact, I was pleased and humbled to say our team received the housing wire mortgage take one on water at the start of this year. We will continue to deliver award-winning products and services to our customers, and we are grateful for the trust and partnership. Thank you for being part of our success until next time, have a great day.
Operator
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.
