MERIDIANLINK, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. The
following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. When reviewing the discussion below, you should
keep in mind the substantial risks and uncertainties that could impact our
business. In particular, we encourage you to review the risks and uncertainties
described in the section titled "Risk Factors" included elsewhere in this Annual
Report on Form 10-K. These risks and uncertainties could cause actual results to
differ materially from those projected in forward-looking statements contained
in this report or implied by past results and trends. Our fiscal year ends on
December 31. Our historical results are not necessarily indicative of the
results that may be expected for any period in the future.

Overview


We are a leading provider of cloud-based software solutions for financial
institutions, including banks, credit unions, mortgage lenders, specialty
lending providers, and CRAs. Financial institutions are undergoing digital
transformation as they seek to transition business models, create new revenue
streams, and increase customer engagement. We support our customers' digital
transformations by helping them create a superior consumer experience with our
mission-critical loan origination software, or LOS, digital lending platform,
and data analytics. Our solutions allow our customers to meet their clients'
financial needs across the institution, which enables improved client
acquisition and retention. Additionally, our solutions allow our customers to
operate more efficiently by enabling automated loan decisioning and enhanced
risk management.

The effective delivery and management of secure and advanced digital solutions
in the complex and heavily regulated financial services industry requires
significant resources, personnel, and expertise. We provide digital solutions
that are designed to be highly configurable, scalable, and adaptable to the
specific needs of our customers. We design and develop our solutions with an
open platform approach intended to provide comprehensive integration among our
solution offerings and our customers' internal systems and third-party systems.
Our solutions are central to the financial institution's technology ecosystem
and help drive additional business volume for our customers both directly and
indirectly through our Partner Marketplace. Our omni-channel borrowing
experience seamlessly integrates all the touch points a borrower may have with
the financial institution (remote via the web or an app, in person at a branch,
or telephonically through an operator). In addition to our streamlined workflow,
which has been refined over twenty years with input from across our customer
base, our Partner Marketplace provides our customers optional integrations, the
collective capabilities of which we believe further distinguish our solution
from that of competitors.

The financial services sector is in the midst of a transition from offering
primarily in-branch services to providing hybrid in-person and digital
experiences for consumers. This transition has recently accelerated, leading to
increased investment in software that enables digital capabilities. We are
well-positioned to assist our customers to compete with tier 1 banks and digital
market entrants. We enable mid-market financial institutions to leverage their
cost of capital advantage and community presence by allowing them to execute
faster. With the digital edge we provide, our customers can become more
competitive in this evolving environment, which, in turn, can drive further
volume on our platform.

We deliver our solutions to the substantial majority of our customers using a
SaaS model under which our customers pay subscription fees for the use of our
solutions as well as fees for transactions processed using our solutions. Our
subscription fees consist of revenues from software solutions that are governed
by pricing and terms contained in contracts between us and our customers. The
initial term of our contracts is typically three years, but may range from one
to seven years. Our customer contracts are typically not cancellable without
penalty. Our contracts almost always contain an evergreen auto-renewal term that
is often for a one-year extension after the initial term, but can extend the
auto-renewal of the contract up to the length of the original term. Our
subscription fee revenues include annual base fees, platform partner fees, and,
depending on the product, fees per search or per loan application or per closed
loan (with contractual minimums based on volume) that are charged on a monthly
basis, which we refer to as volume-based fees. We earn additional revenues based
on the volume of loan applications or closed loans processed above our
customers' contractual minimums.

As a result of this pricing approach, our revenues from our customers grow as
our customers add additional transaction types, purchase more modules, utilize
more of our partner integrations, or see increased transaction volume. We
generally sell our solutions through our direct sales organization or channel
partners and recognize our subscription fee revenues over the terms of the
customer agreements.

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Our revenues per customer vary from period to period based on the length and
timing of customer implementations, sales of additional solutions to existing
customers, changes in the number of transactions processed (including impacts
from seasonality and cyclicality), and variations among existing customers and
new customers with respect to the mix of purchased solutions and related
pricing.

We seek to strengthen and grow our customer relationships by providing
consistent, high-quality implementations and customer support services, which we
believe drive higher customer retention and incremental sales opportunities
within our existing customer base. We plan to continue investing in migrating
our solutions onto a single platform resident in a public cloud and driving
product development to further increase customer cross-selling opportunities and
retention. We believe that our increased focus on our go-to-market strategy and
strategic partnerships will drive incremental opportunities for revenue and
accelerate client cross-sell growth.

In addition, we believe there is untapped market potential in the loan
origination and digital banking markets. We believe significant opportunity for
additional customer acquisition and revenue growth exists as financial
institutions continue to adopt online lending and account opening practices and
require more efficient technologies. We provide these services to institutions
of all sizes and complexities, but currently focus on the middle market. By
focusing on better sales execution, providing and allocating resources where
needed, and improving marketing efforts, we are confident in our ability to
expand our customer base within our current target market.

We cater largely to financial institutions such as community banks and credit
unions with assets under management between $100 million and $10 billion. In
recent years community banks have continued to compete with their typically
larger non-community bank competitors, and the FDIC reported that in 2019 net
interest income accounted for over 78 percent of community bank net operating
revenues. A large opportunity exists in expanding our target market to new
customers with less than $100 million or greater than $10 billion in assets
under management. In our down-market, smaller institutions commonly use
spreadsheets or other inexpensive alternatives. These companies have a smaller
volume of loans per month, but there is opportunity to alter our solutions to
offer decreased pricing and functionality in order to lower implementation fees.

We have continuously invested in expanding and improving our solutions since
they were first introduced two decades ago, and we intend to continue investing
both organically and inorganically through acquisitions to expand our portfolio.
We are focused on introducing new solutions and enhancing services and
capabilities in areas including digital lending, data insights, and collections
to further expand our reach into the consumer lending markets. In addition to
developing our solutions organically, we may selectively pursue acquisitions,
joint ventures, or other strategic transactions that provide additional
capabilities or customers, or both. Acquisitions to date have included CRIF
Lending Solutions in June 2018, and TCI, in November 2020. TCI is the creator of
DecisionLender, a SaaS loan origination solution. We believe that with the
addition of TCI, our position as a vendor of choice is enhanced among financial
institutions seeking solutions to manage their needs from initiation of client
relationships to facilitating the extension of credit to their clients. In
December 2020, we acquired all of the assets of TazWorks. TazWorks provides
software and data solutions to CRAs focused on the employment and tenant
screening market, a market that is adjacent and complementary to our current
solutions for credit-focused CRAs. In April 2021, we acquired Saylent, a data
analytics and marketing solution that offers insights to financial institutions
that help drive account and credit and debit card usage and should allow us to
accelerate market availability of already planned product investments.

We have designed our Partner Marketplace to act as the gateway for third parties
to access our customers, which allows our customers to leverage the capabilities
from these third parties to enable an accelerated loan process with improved
efficiency and reduced cost. We are able to capitalize on one-time service fees
from our partners upon their integration into our Partner Marketplace and a
revenue share from our partners as they derive revenues from our software
solution. As we grow our business, we expect to add additional product partners
and drive additional monetization opportunities. We also intend to cultivate and
leverage existing and future partners to grow our market presence.

We believe that delivery of consistent, high-quality implementations and
customer support services is a significant driver of purchasing and renewal
decisions of our prospects and customers. To develop and maintain a reputation
for high-quality service, we seek to build deep relationships with our customers
through our customer support organization, which we staff with personnel who are
motivated by our common mission of using technology to help our customers
succeed and who are knowledgeable with respect to the regulated and complex
nature of the financial services industry. As we grow and scale our business, we
intend to continue to invest in and grow our internal services and support
organization, as well as partner with high quality third-party organizations, to
support our customers' needs and maintain our reputation.

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Impact of the COVID-19 pandemic


The COVID-19 pandemic has had widespread, rapidly-evolving, and unpredictable
impacts on global societies, economies, financial markets, and business
practices (including in California where our corporate headquarters are
located). Federal and state governments have implemented various measures in an
effort to contain the virus, which have caused, and are continuing to cause,
business slowdowns or shutdowns in affected areas, both regionally and
worldwide.

Our focus remains on promoting employee health and safety, serving our
customers, complying with regulations, and ensuring business continuity. We
continue to assess local regulations and restrictions across the United States
and the administration of vaccine programs to ensure that our return to work is
thoughtful, prudent, and handled with an abundance of caution with the health of
our employees being the top priority.

There continues to be uncertainty as to the duration and extent to which the
COVID-19 pandemic, as well as the emergence of new variants, may adversely
impact our business operations, financial performance, and results of
operations, as well as macroeconomic conditions, at this time. See Part I, Item
1A. "Risk Factors" for further discussion of the impact and possible future
impacts of the COVID-19 pandemic on our business.

Main operational measures


In addition to the United States generally accepted accounting principles, or
GAAP, measures described below in "-Components of Operating Results," we monitor
the following operating measures to evaluate growth trends, plan investments,
and measure the effectiveness of our sales and marketing efforts:

Recurring annual income


We calculate annual recurring revenue, or ARR, as the total subscription fee
revenues calculated in the latest twelve-month measurement period for those
revenue-generating entities in place throughout the entire twelve-month
measurement period plus the subscription fee revenues calculated on an
annualized basis from new entity activations in the measurement period. We
believe that the annualized subscription fee revenues calculated from these new
activations in a particular measurement period provide a reasonable estimate of
the total subscription fee revenues to be recognized from these entities once
they are on our platform for a full twelve-month period due to the long-term
nature of our agreements and the volume-based aspect of our pricing model.
Although our business can be impacted by seasonality of consumer borrowing
trends, we anticipate the impacts of any seasonality to be comparable on a
period-to-period basis. Our calculation includes only subscription fee revenues
and excludes any professional services revenues and other revenues. We believe
ARR is an important metric indicating the scale and growth of our business. Our
ARR was $240.1 million, $193.0 million, and $142.8 million as of December 31,
2021, 2020, and 2019, respectively. Our use of ARR has limitations as an
analytical tool, and investors should not consider it in isolation. Other
companies in our industry may calculate annual recurring revenue differently,
which reduces its usefulness as a comparative measure. We have refined our
methodology for calculating ARR as reflected in the above recalculated numbers
for historical periods.

Total Customers

We define a customer as a legal entity that has a contractual relationship with
us to use our software solutions. A single entity could have agreements across
multiple lines of business, all of which together would be considered a single
customer. The net rate at which we add customers varies based on our
implementation capacity, the size and unique needs of our customers, the
readiness of our customers to implement our solutions, customer acquisition
through any strategic transactions we complete, and customer attrition,
including as a result of merger and acquisition activity among financial
institutions whereby the acquirer requests assignment of the agreement to the
resulting entity or a renegotiation of the acquirer's agreement to include the
acquired company's activities. We believe the number of total customers is a key
indicator of our market penetration, growth, and future revenues. Our ability to
attract new customers is primarily impacted by the effectiveness of our
marketing programs and our direct sales force. Accordingly, we have invested in
and intend to continue to invest in our marketing programs and direct sales
force. We had 1,901, 1,852, and 1,236 customers on our platform as of December
31, 2021, 2020, and 2019, respectively. We have refined our methodology for
calculating the customer count as reflected in the above recalculated numbers
for historical periods.

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Organic customer growth rate


We utilize our organic customer growth rate to not only monitor the satisfaction
of our customers but also to measure our ability to successfully bring new
customers on board and evaluate the effectiveness of our business strategies. We
define organic customer growth rate as the percentage increase in the number of
total customers on the last day of the measurement period compared to the number
of total customers on the day twelve months prior to the measurement date, which
measures the change in total customers, net of both customer terminations and
customer additions between the respective measurement periods. Our organic
customer growth rate calculation excludes and will exclude the impact of any
acquisitions or divestitures. We had an organic customer growth rate of 2.2% for
the measurement period ended December 31, 2021, and 2.0% for the measurement
period ended December 31, 2020. Our use of organic customer growth rate has
limitations as an analytical tool, and investors should not consider it in
isolation.

Net retention rate ARR


We have refined our calculation of the ARR Net Retention Rate by calculating the
ARR recorded in the latest twelve-month measurement period for the cohort of
revenue-generating entities in place throughout the entire prior twelve-month
measurement period. We divide the result by the cohort's ARR recorded in the
twelve-month period that is immediately prior to the beginning of the current
measurement period. This calculation refinement will allow us to capture future
retention analytics through time for each cohort. Our ARR Net Retention Rate was
103% for the year ended December 31, 2021. Our ARR Net Retention Rate provides
insight into growth in the usage of our solutions, sales of new solutions and
services into revenue generating entities during the current year and attrition.
Our previous ARR Net Retention Rate for 2020 of 120% was calculated according to
our prior calculation methodology at an aggregated entity level.

The most significant drivers of improvements in our ARR Net Retention Rate each
year are the increases in adoption of additional solutions such as additional
products, channels, loan types, or modules, the increase in volume transacted on
our systems, and price increases. The most significant factors in the decrease
in ARR Net Retention Rate are customer attrition and reduced volume transacted
on our systems either due to decreased product usage or lower transaction
volumes. Our use of ARR Net Retention Rate has limitations as an analytical
tool, and investors should not consider it in isolation. Other companies in our
industry may calculate revenue retention rate differently, which reduces its
usefulness as a comparative measure.

Components of operating results

We have one main business activity and operate in a single operating and reportable segment.

Revenue

Our revenue consists of three components: subscription fees, professional services and other revenue.

Subscription Fee Revenue

Our subscription fees consist of revenue from software solutions which are governed by the prices and terms contained in the contracts between us and our customers. Our subscription fee revenue includes annual base fee, platform partner fee and, depending on the solution, fee per search or per loan application or per closed loan (with volume-based contractual minimums) which are charged on a monthly basis, which we refer to as volume-based charges.


Our software solutions are hosted in either our data centers or cloud-based
hosting services and are generally available for use as hosted application
arrangements under subscription fee agreements. Subscription fees from these
applications are recognized over time on a ratable basis over the customer
agreement term beginning on the date our solution is made available to the
customer. Amounts that have been invoiced are recorded in accounts receivable
and deferred revenues or revenues, depending on whether the revenue recognition
criteria have been met. Additional fees for monthly usage above the levels
included in the standard subscription fee are recognized as revenue in the month
when the usage amounts are determined and reported.

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Professional services income


We offer implementation, configuration, consulting, and training services for
our software solutions and SaaS offerings. Revenues from services are recognized
in the period the services are performed, provided that revenue recognition
criteria have been met.

Other income


We enter into referral and marketing agreements with various third parties, in
which revenues are primarily generated from transactions initiated by the third
parties' customers. We may introduce our customers to a referral partner or
offer additional services available from the referral partner via an integration
with our solutions. We market our partners' solutions to our customers as a way
not only to generate revenue but also to ensure that our customers are
leveraging the full benefit of our solution, which includes the capabilities
offered through our partners. Revenues are recognized in the period the services
are performed, provided that collection of the related receivable is reasonably
assured.

Cost of Revenues

Cost of revenues consists primarily of salaries and other personnel-related
costs, including employee benefits, bonuses, and share-based compensation for
employees providing services to our customers. This includes the costs of our
implementation, customer support, data center, and customer training personnel.
Additional expenses include fees paid to third-party vendors in connection with
delivering services to customers.

Cost of revenues also includes cloud-based hosting services, an allocation of
general overhead costs, and the amortization of developed technology. We
allocate general overhead expenses to all departments based on the number of
employees in each department, which we consider to be a fair and representative
means of allocation.

We capitalize certain software development costs related to programmers,
software engineers, and quality control teams working on our software solutions.
We commence amortization of capitalized costs for solutions that have reached
general release. Capitalized software development costs are amortized to cost of
revenues over their estimated economic lives.

We intend to continue to increase our investments in our implementation and
customer support teams and technology infrastructure to serve our customers and
support our growth. We expect cost of revenues to continue to grow in absolute
dollars, after adjusting for one-time cost share-based compensation charges
resulting from our corporate conversion, as we grow our business but to
fluctuate as a percentage of revenues based principally on the level and timing
of implementation and support activities and other related costs. For more
information on our corporate conversion in connection with our IPO, see Note 1
to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.

Gross profit and gross margin


Gross profit is revenues less cost of revenues, and gross margin is gross profit
as a percentage of revenues. Gross profit has been, and will continue to be,
affected by various factors, including the mix of our subscription fees,
professional service and other revenues, the costs associated with our
personnel, third-party vendors, and cloud-based hosting services, and the extent
to which we expand our implementation and customer support services. We expect
that our gross margin will fluctuate from period to period depending on the
interplay of these various factors. Our gross margin was 66.5% 70.7% and 69.0%
for the years ended December 31, 2021, 2020, and 2019, respectively.

Functionnary costs

Sales and Marketing


Sales and marketing expenses consist primarily of salaries and other
personnel-related costs, including commissions, employee benefits, bonuses, and
share-based compensation. Sales and marketing expenses also include expenses
related to advertising, lead generation, promotional event programs, corporate
communications, travel, outside consulting fees, and allocated overhead.
Commissions related to software sales are generally capitalized and then
amortized over the expected period of customer benefit.

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Sales and marketing expenses are also impacted by the timing of significant
marketing programs such as our annual client conference, which we typically hold
during the second quarter. We plan to continue investing in sales and marketing
by increasing our number of sales and marketing personnel and expanding our
sales and marketing activities. As a result, we expect our sales and marketing
expenses to increase in absolute dollars, after adjusting for one-time cost
share-based compensation charges resulting from our corporate conversion, and as
a percentage of revenues over the long term as we scale the business and
integrate our acquisitions. We believe these investments will help us build
brand awareness, add new customers, and expand sales to our existing customers
as they continue to buy more solutions from us.

Research and development


Research and development expenses include salaries and other personnel-related
costs, including employee benefits, bonuses, share-based compensation. Research
and development expenses also include third-party contractor expenses, software
development costs, allocated overhead, and other related expenses incurred in
developing new solutions and enhancing existing solutions.

Certain research and development costs that are related to our software
development, which include salaries and other personnel-related costs attributed
to programmers, software engineers, and quality control teams working on our
software solutions, are capitalized and are included in intangible assets, net
on the consolidated balance sheets.

We believe that continuing to improve and enhance our solutions is essential to
maintaining our reputation for innovation and growing our customer base and
revenues. We plan to continue investing in research and development by
increasing the number of our software developers. As a result, we expect our
research and development expenses to increase in absolute dollars, after
adjusting for one-time cost share-based compensation charges resulting from our
corporate conversion, over the long term as we scale the business, including
through integration of our acquisitions.

General and administrative

General and administrative expenses primarily include salaries and other personnel-related expenses, including benefits, bonuses and stock-based compensation, of our administrative, financial and accounting employees, information systems, legal and human ressources. General and administrative expenses also include consulting and professional fees, insurance and travel.


General and administrative expenses include depreciation and amortization of
property and equipment and amortization of acquired intangibles. Identifiable
intangible assets with finite lives, such as customer relationships, trademarks,
and non-competition agreements, are amortized over their estimated useful lives
on either a straight-line or accelerated basis, depending on the nature of the
intangible asset.

We expect to continue to incur incremental expenses associated with the growth
of our business and to meet increased compliance requirements associated with
operating as a public company. These expenses include costs to comply with
Section 404 of the Sarbanes-Oxley Act and other regulations governing public
companies, increased costs of directors' and officers' liability insurance, and
investor relations activities, partially offset by the termination of
sponsor-related costs. As a result, we expect our general and administrative
expenses to increase in absolute dollars, after adjusting for one-time cost
share-based compensation charges resulting from our corporate conversion, but to
decrease as a percentage of revenues over the long term as we scale the business
and continue to adjust to being a public reporting company.

Total other (revenue) expenses, net


Total other (income) expense, net consists primarily of interest expense, net
and loss on debt repayment and extinguishment. Interest expense consists of
interest attributable to our credit facilities, amortization of a financing
obligation from a failed sale-leaseback transaction during 2020, and
amortization of lender-related fees and other direct incremental costs of
securing financing, partially offset by interest income from our
interest-bearing cash accounts. Loss on debt repayment and extinguishment
consists of the removal of deferred financing fees associated with the November
2021 and July 2021 repayments.

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Provision for income taxes


Our income tax expense, deferred tax assets and liabilities, and liabilities for
unrecognized tax benefits reflect management's best estimate of current and
future taxes to be paid. We are subject to federal income taxes in the United
States and numerous state jurisdictions. Significant judgments and estimates are
required in the determination of the consolidated income tax expense.

We recognize deferred tax assets to the extent that these assets are more likely
than not to be realized. If they are not, deferred tax assets are reduced by a
valuation allowance. In making such a determination, all available positive and
negative evidence is considered, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies,
and results of recent operations. If it is subsequently determined that deferred
tax assets would be more likely than not realized in the future, in excess of
their net recorded amount, an adjustment would be made to the deferred tax asset
valuation allowance, which would reduce the provision for income taxes. After a
review of the four sources of taxable income (as described above), and after
consideration of our continuing cumulative income position, inclusive of impact
from permanent differences, as of December 31, 2021, the Company has not
recorded a valuation allowance on its deferred tax assets.

We have recorded an uncertain tax position with respect to our R&D credits.
There are no penalties or interest recorded on these liabilities as the credits
have not yet been fully utilized, and therefore the uncertain tax position is
recorded primarily as a reduction of the deferred tax asset related to these
credits.

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Operating results

Consolidated Statements of Income

The following table sets forth our Consolidated Statements of Income data for each of the periods indicated:


Consolidated statements of operations data                                 Year Ended December 31,
(in thousands, except share and unit and per share and
per unit amounts)                                                              2021                  2020                  2019
Revenues, net                                                             $

267,676 $199,340 $152,731
Revenue cost: Subscription and services(1)

                                                    77,103                49,480                39,551
Amortization of developed technology                                            12,519                 8,874                 7,771
Total cost of revenues                                                          89,622                58,354                47,322
Gross profit                                                                   178,054               140,986               105,409
Operating expenses:
General and administrative(1)                                                   85,160                54,640                59,536
Research and development(1)                                                     36,336                18,691                15,966
Sales and marketing(1)                                                          18,122                 9,371                 9,589

Loss on termination of funding obligation due to a related party

                                                                        -                 5,755                     -
Impairment of trademarks                                                             -                 5,362                     -
Acquisition related costs                                                          781                 1,579                     -
Total operating expenses                                                       140,399                95,398                85,091
Operating income                                                                37,655                45,588                20,318
Other (income) expense, net:
Other income                                                                       (49)                  (41)                  (16)
Interest expense, net                                                           32,615                34,686                38,053
Loss on debt repayment and extinguishment                                        9,944                     -                     -
Total other expense, net                                                        42,510                34,645                38,037
Income (loss) before provision for income taxes                                 (4,855)               10,943               (17,719)

Provision for (benefit from) income taxes                                        5,141                 1,792                (5,115)
Net income (loss)                                                         $     (9,996)         $      9,151          $    (12,604)

Class A preferred return                                                       (20,944)              (34,411)              (31,460)
Net loss attributable to common stockholders                              $ 

(30,940) ($25,260) ($44,064)

Weighted average common shares outstanding – basic and diluted

                                                                     63,813,770            51,153,041            49,949,858
Net loss per share - basic and diluted                                    $ 

(0.48) $(0.49) $(0.88)
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(1)Upon completion of our IPO, 500,000 options to purchase common shares, and
426,711 Class B Units originally issued at a price of $0.06 per unit, to
employees, directors, and officers of the Company, or the Carried Equity Units,
became fully vested, and we recognized accelerated share-based compensation
expense in the amount of $21.4 million during the year ended December 31, 2021.
Prior to the closing of our IPO, all of the outstanding Class B Units converted
into shares of common stock on a one-for-one basis. Share-based compensation is
as follows:

                                                                            Year Ended December 31,
                                                                        2021          2020         2019
Cost of revenues                                                     $   6,478      $   180      $    87
General and administrative                                              14,558        1,952        1,307
Research and development, net of amounts capitalized                     7,453          339          228
Sales and marketing                                                      2,247          370          169
Total share-based compensation expense                               $  

30,736 $2,841 $1,791

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Comparison of the years ended December 31, 2021 and 2020

Revenues, net

                                  Year Ended December 31,                             Change
(in thousands)                                                       2021           2020                  $            %
Revenues, net                                                     $ 267,676      $ 199,340            $ 68,336        34  %


Revenues increased $68.3 million, or 34%, for the year ended December 31, 2021
compared to the year ended December 31, 2020. The increase was partially due to
revenue from TCI and TazWorks acquisitions, which accounted for growth of 21%.
The remaining increase primarily resulted from new and ramping customers as well
as volume and revenue increases from existing customers. Lending Software
Solutions accounted for growth of 12%, and Data Verification Software Solutions
accounted for growth of 1%. For both of our solutions, we receive incremental
revenues if customers exceed their minimum commitments for monthly transactions,
which typically is applications or closed and funded loans for Lending Software
Solutions and credit, tenant, or employment verification reports for our Data
Verifications Software Solutions.

Revenue cost and gross profit


Subscription and services

                                                                  Year Ended December 31,                                Change
(in thousands)                                                                                       2021              2020                      $                 %
Subscription and services                                                                         $ 77,103          $ 49,480                $ 27,623                 56  %


Subscription and services cost of revenues increased $27.6 million, or 56%, for
the year ended December 31, 2021 compared to the year ended December 31, 2020.
The increase was partially due to $7.0 million in additional third-party costs,
driven by higher volumes and additional costs related to TCI and TazWorks
revenue. There was also an increase of $6.3 million in share-based compensation
expense primarily related to the vesting of Carried Equity Units and new equity
grants upon completion of our IPO. The remaining increase was related to higher
compensation and benefits spend, largely from the addition of employees from
TCI, TazWorks, and Saylent.

Amortization of developed technology

                                                        Year Ended December 31,                                Change
(in thousands)                                                                             2021              2020                      $                 %
Amortization of Developed Technology                                                    $ 12,519          $  8,874                $  3,645              

41%



Amortization of developed technology increased $3.6 million, or 41%, for the
year ended December 31, 2021 compared to the year ended December 31, 2020. The
increase was primarily due to an additional $2.4 million in amortization related
to the acquisitions of developed technology of TCI, TazWorks, and Saylent. The
remaining increase was due to additional capitalized software costs related to
internally developed software and the related amortization.

Gross Profit

                                  Year Ended December 31,                             Change
(in thousands)                                                       2021           2020                  $            %
Gross Profit                                                      $ 178,054      $ 140,986            $ 37,068        26  %


Gross profit increased $37.1 million, or 26%, for the year ended December 31,
2021 compared to the year ended December 31, 2020. The increase was primarily
due to an increase of revenues, as described above, partially offset by an
increase in cost of revenues due to an increase in third-party costs,
share-based compensation expense, and the acquisitions of TCI, TazWorks, and
Saylent.

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Operating Expenses

General and Administrative

                                                                  Year Ended December 31,                                Change
(in thousands)                                                                                       2021              2020                      $                 %
General and Administrative                                                                        $ 85,160          $ 54,640                $ 30,520                 56  %


General and administrative expenses increased $30.5 million, or 56%, for the
year ended December 31, 2021 compared to the year ended December 31, 2020. The
increase includes an additional $12.6 million stock compensation expense
primarily related to the vesting of options and new equity grants upon
completion of our IPO and $6.8 million amortization from intangible assets.
Additionally, during the year ended December 31, 2021, we amended the employment
agreement with one of our executive officers and settled the remaining retention
bonus resulting in an $1.0 million increase compared to 2020. The remaining
increase was largely related to higher advisory services spend in connection
with our IPO, increased insurance costs for director and officer insurance, and
various system implementations.

Research and Development

                                           Year Ended December 31,                            Change
(in thousands)                                                                2021          2020                 $            %
Research and Development                                                   $ 36,336      $ 18,691            $ 17,645        94  %


Research and development expenses increased $17.6 million, or 94%, for the year
ended December 31, 2021 compared to the year ended December 31, 2020. The
increase was primarily due to an additional $7.1 million stock compensation
expense related to the vesting of Carried Equity Units and new equity grants
upon completion of our IPO, as well as additional personnel-related expenses,
largely from acquisitions.

Sales and Marketing

                                      Year Ended December 31,                           Change
(in thousands)                                                           2021         2020                 $           %
Sales and Marketing                                                   $ 18,122      $ 9,371            $ 8,751        93  %


Sales and marketing expenses increased $8.8 million, or 93%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020. The increase was
primarily due to an additional $1.9 million share-based compensation expense
related to the vesting of Carried Equity Units and new equity grants upon
completion of our IPO, as well as increased headcount on our sales and marketing
teams.

Loss on Termination of Funding Obligation

                                                        Year Ended December 31,                                 Change
(in thousands)                                                                              2021              2020                      $                  %
Loss on Termination of Financing                                                        $       -          $  5,755                $ (5,755)               (100) %
Obligation Due to Related Party


Loss on termination of related party funding obligation decreased $5.8 millionor 100%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease is due to the end of the funding obligation in 2020, for which no similar event occurred in 2021.

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Impairment of Trademarks
                                           Year Ended December 31,                       Change
(in thousands)                                                              2021       2020                 $             %
Impairment of Trademarks                                                   $  -      $ 5,362            $ (5,362)       (100) %


Impairment on trademarks decreased $5.4 million, or 100%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020. The loss in 2020
was related to impairment of definite-lived trademarks triggered by our decision
to rebrand certain products. There was no such loss in 2021.

Acquisition Related Costs
                                              Year Ended December 31,                        Change
(in thousands)                                                                 2021        2020                $           %
Acquisition Related Costs                                                     $ 781      $ 1,579            $ (798)      (51) %


Acquisition related costs decreased $0.8 million, or 51%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020. The decrease was
due to lower acquisitions costs for Saylent during 2021 compared to TazWorks and
TCI during 2020.

Total Other Expense, net

                                           Year Ended December 31,                            Change
(in thousands)                                                                2021          2020                 $           %
Total Other Expense, net                                                   $ 42,510      $ 34,645            $ 7,865        23  %


Total other expense, net increased $7.9 million, or 23%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020. The increase was
primarily due to the loss on debt repayment and extinguishment of $9.9 million,
partially offset by lower interest expense on debt during 2021.

Provision for (benefit from) income taxes

                                                        Year Ended December 31,                                Change
(in thousands)                                                                             2021              2020                      $                 %
Provision for (Benefit From) Income
Taxes                                                                                   $  5,141          $  1,792                $  3,349                187  %


Provision from income taxes increased $3.3 million, or 187%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020. The increase was
primarily due to several permanent tax differences resulting from certain
share-based compensation incurred at the time of our IPO, which offset the
decrease in income before provision for income taxes.

Comparison of the years ended December 31, 2020 and 2019

For a comparison of our operating results for the years ended December 31, 2020 and 2019, and discussion of cash flows for the year ended December 31, 2019see the MD&A and discussion of financial condition and results of operations in our prospectus.

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Cash and capital resources

Sources of liquidity


We have financed our operations primarily through cash flows from operations,
long-term debt, and, concurrent with the completion of our IPO on July 30, 2021,
through proceeds from the issuance of our common stock. In connection with our
IPO, we sold 10.0 million shares of our common stock at a price of $26.00 per
share, before underwriting discounts and commissions, which generated net
proceeds to us of approximately $242.1 million, after deducting $17.9 million in
underwriting discounts and commissions and offering costs.

As of December 31, 2021, our principal sources of liquidity were cash and cash
equivalents of $113.6 million and unused capacity under our revolving line of
credit of $50.0 million. Based upon our current levels of operations, we believe
that our cash flows from operations along with our other sources of liquidity
are adequate to meet our cash requirements for at least the next twelve months.

Our primary uses of cash are funding operations, funding acquisitions, capital
expenditures, debt payments, and interest expense. Our use of cash is impacted
by the timing and extent of the required payments for each of these activities.

Our future capital requirements will depend on many factors, including our
growth rate, the timing and extent of spending to support research and
development efforts, the continued expansion of sales and marketing activities,
the introduction of new and enhanced solutions, the seasonality impacts on our
business, the timing and extent of spending to support our growth strategy, the
continued market acceptance of our solutions, and the future acquisitions of
solutions or businesses. In the event that additional financing is required from
outside sources, we may not be able to raise such financing on terms acceptable
to us or at all. We continue to monitor our financing requirements and may
pursue refinancing opportunities to potentially reduce interest rates and extend
maturities. If we are unable to raise additional capital when desired, our
business, operating results, and financial condition would be adversely
affected.

Operating leases


We lease office space under various operating lease agreements that expire
through December 2026. We recognize the related rent expense on a straight-line
basis over the term of each lease. Free rent and rental increases are recognized
on a straight-line basis over the term of each lease.

One lease is with a related party with a term date of December 2022. The monthly
payments during each of the years ended December 31, 2021, 2020, and 2019 were
$0.1 million.

Long-Term Debt

For a detailed description of our long-term debt, please refer to Note 5 of our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.


Cash Flows

The following table summarizes our cash flows for the periods presented (in
thousands):

                                                   Year Ended December 31,                                  Change
(in thousands)                                     2021                   2020                      $                   %
Net cash provided by (used in):
Operating activities                       $     89,835               $  67,479                $  22,356                   33  %
Investing activities                           (126,299)               (115,392)                 (10,907)                   9  %
Financing activities                            110,228                  (9,976)                 120,204                1,205  %
Net increase (decrease) in cash, cash
equivalents, and restricted cash           $     73,764               $ (57,889)               $ 131,653                  227  %


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Cash flow from operating activities

Our largest source of operating cash comes from cash receipts from subscription sales to our customers. Our primary uses of cash flow from operating activities are personnel expenses, marketing expenses and payments to third-party vendors.


Operating cash flow is derived by adjusting our net income (loss) for non-cash
operating items, such as depreciation and amortization, provision for doubtful
accounts, amortization of debt issuance costs, share-based compensation expense,
deferred income taxes, loss on disposal of fixed assets, loss on debt repayment
and extinguishment, impairment charges, and changes in operating assets and
liabilities, which reflect timing differences between the receipt and payment of
cash associated with transactions and when they are recognized in our results of
operations.

For the year ended December 31, 2021, cash provided by operating activities was
$89.8 million, primarily driven by net loss adjusted for depreciation and
amortization, share-based compensation expense, loss on debt repayment and
extinguishment, and deferred income taxes. Net loss was $10.0 million, adjusted
by non-cash charges of $100.4 million and a decrease of $0.6 million in
operating assets and liabilities. The non-cash charges consist primarily of
depreciation and amortization of $50.5 million, share-based compensation of
$30.7 million, deferred income taxes of $4.9 million, and loss on debt repayment
and extinguishment of $9.9 million. The change in operating assets and
liabilities was primarily the result of an increase in deferred revenue of $3.8
million and accounts receivable of $1.6 million due to our increased customer
growth and timing of new and existing customers implementations during the
period. The change was offset by an increase in prepaid expenses and other
assets of $5.7 million, due in part to the timing of payments and also increases
in prepaid D&O public company insurance policies.

For the year ended December 31, 2020, cash provided by operating activities was
$67.5 million as a result of net income of $9.2 million, adjusted by non-cash
charges of $57.5 million and an increase of $0.8 million in operating assets and
liabilities. The non-cash charges primarily consist of depreciation and
amortization of $40.2 million, share-based compensation of $2.8 million, loss on
disposal of fixed assets and termination of financing obligation of $5.8
million, impairment of trademarks of $5.4 million, and deferred income taxes of
$1.6 million. The change in operating assets and liabilities primarily consisted
of increases in accounts receivable of $3.2 million and prepaid expenses and
other assets of $2.1 million, partially offset by a $1.5 million increase in
accounts payable, resulting primarily from timing of payments, an increase of
$2.7 million in accrued expenses primarily due to the higher compensation cost
and payroll timing, and an increase in deferred revenue of $1.9 million due to
our increased customer growth and timing of new and existing customers
implementations during the period.

Cash flow from investing activities


Net cash used in investing activities of $126.3 million for the year ended
December 31, 2021 consisted of $84.6 million and $35.9 million cash paid for the
acquisitions of TazWorks and Saylent, respectively, $4.9 million for capitalized
software additions, and $0.8 million for purchases of property and equipment.

Net cash used in investing activities of $115.4 million for the year ended
December 31, 2020 consisted of $103.1 million and $5.0 million of cash paid for
the acquisitions of TCI and TazWorks, respectively, $3.2 million for capitalized
software additions, and $4.1 million cash paid for purchases of property and
equipment.

Cash flow from financing activities


Net cash provided by financing activities of $110.2 million for the year ended
December 31, 2021 consisted primarily of $247.3 million in IPO proceeds, net of
underwriters' discounts and commissions, and $535.0 million proceeds from
issuance of long-term debt, offset by $631.3 million in principal payments of
long-term debt, including $628.7 million for the full repayment of the First and
Second Liens. The year ended December 31, 2021 also included a $25.7 million
payment on the financing obligation due to related party, $4.8 million payments
of deferred offering costs, $2.1 million payment to sellers of TCI $7.2 million
payment of debt issuance costs, and $1.9 million of repurchases of Class A Units
and Class B Units.

Net cash used in financing activities of $10.0 million for year ended December
31, 2020 consisted primarily of $4.2 million of principal payments of long-term
debt, and $3.1 million of repurchases of Class A Units and Class B Units.

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Critical Accounting Policies and Significant Judgments and Estimates


Our management's discussion and analysis of financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts of revenues and
expenses incurred during the reporting periods. Certain of our accounting
policies require the application of significant judgment by management in
selecting the appropriate assumptions for calculating financial estimates. By
their nature, these judgments are subject to an inherent degree of uncertainty.
On an ongoing basis, we evaluate our estimates including those related to
revenue recognition, deferred revenue, assets recognized from costs to obtain a
contract with a customer, accounts receivable, fair value of financial
instruments, share-based compensation, business combinations, goodwill and
intangible assets, impairment of long-lived assets, research and development and
capitalized software, and income taxes. These judgments are based on our
historical experience, terms of our existing contracts, our evaluation of trends
in the industry, and information available from outside sources as appropriate.
Our actual results may differ from those estimates. While our significant
accounting policies are described in the notes to our consolidated financial
statements, we believe these critical accounting policies are the most important
to understanding when evaluating our reported financial results.

Revenue recognition


Revenue-generating activities are directly related to the sale, implementation,
and support of our solutions. We derive the majority of our revenues from
subscription fees for the use of our solutions, which include annual fees,
platform partner fees, and volume-based fees, as well as revenues for customer
support and professional implementation services related to our solutions.

Subscription Fee Revenue


Our software solutions are generally available for use as hosted application
arrangements under subscription fee agreements. Our software solutions consist
of an obligation for us to provide continuous access to a technology solution
that we host and routine customer support, both of which we account for as a
stand-ready performance obligation. Subscription fees from these applications
are recognized over time on a ratable basis over the customer agreement term
beginning on the date our solution is made available to the customer. Amounts
that have been invoiced are recorded in accounts receivable and deferred
revenues or revenues, depending on whether the revenue recognition criteria have
been met. Additional fees for monthly usage above the levels included in the
standard subscription fee are recognized as revenue in the month when the usage
amounts are determined and reported.

We have a limited number of legacy customers that host and manage our solutions
on premises under term license and maintenance agreements. This type of
arrangement is no longer sold and represents an immaterial amount of our
subscription fee revenues. However, there is no planned sunset or end of life
for these on-premises solutions.

Professional services income

We offer implementation, consulting and training services for our software solutions and SaaS offerings. Service income is recognized in the period in which the services are rendered, provided that collection of the corresponding receivable is probable.

Other income


We enter into referral and marketing agreements with various third parties, in
which our revenues are primarily generated from transactions initiated by the
third parties' customers. We may introduce our customers to a referral partner
or offer additional services available from the referral partner via an
integration with our software solutions. Revenues are recognized in the period
the services are performed, provided that collection of the related receivable
is probable.

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Significant Judgments

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good
or service to the customer and is the unit of accounting in the new revenue
standard. Determining whether products and services are considered distinct
performance obligations that should be accounted for separately versus together
may require significant judgment. Judgments include whether the series guidance
under Accounting Standards Codification, or ASC, 606 applicable to our
subscription services and whether implementation and training services represent
distinct performance obligations. We have contracts with customers that often
include multiple performance obligations, usually including multiple
subscription and implementation services. For these contracts, we account for
individual performance obligations that are distinct separately by allocating
the contract's total transaction price to each performance obligation in an
amount based on the relative standalone selling price, or SSP, of each distinct
good or service in the contract.

In determining whether SaaS services are distinct, we considered whether the
series guidance applies to our subscription services. We considered various
factors including that substantially all of our SaaS arrangements involve the
transfer of a service to the customer, which represents a performance obligation
that is satisfied over time because the customer simultaneously receives and
consumes the benefits of the services provided. Customer support services, forms
maintenance, and subscription services are considered a series of distinct
services that are accounted for as a single performance obligation as the nature
of the services are substantially the same and have the same pattern of transfer
(i.e., distinct days of service). For these contracts, we allocate the ratable
portion of the consideration to each period based on the services provided in
such period.

In determining whether implementation services are distinct from subscription
services, we considered that there is not a significant level of integration
between implementation and subscription services. Further, implementation
services in our contracts provide benefit to the customer with other readily
available resources and the implementation services generally are not
interdependent with the SaaS subscription services. Therefore, implementation
services are generally accounted for as a separate performance obligation, as
they represent distinct services that provide benefit to the customer apart from
SaaS services.

Consulting and training services are generally considered a separate performance
obligation as they are considered distinct services that provide a benefit to
the customer on their own.

Share-Based Compensation

We account for stock-based compensation by estimating the fair value of stock-based awards at the grant date. We estimate the fair value of our stock options using the Black-Scholes option pricing model, and the portion that is expected to ultimately vest is recognized as compensation expense over the required service period.


Calculating share-based compensation expense requires the input of highly
subjective assumptions, including the expected term of the share-based awards,
fair value per share, share price volatility, risk free interest rates, and the
expected dividend yield of our common stock. Prior to our IPO, we utilized an
independent valuation specialist to assist with our determination of the fair
value per share. The methods used to determine the fair value per share included
discounted cash flow analysis, comparable public company analysis, and
comparable acquisition analysis. Starting in the third quarter of 2020 and until
our IPO, the probability-weighted expected return method was used and considered
multiple exit scenarios, including a near term initial public offering. The
assumptions used in calculating the fair value of share-based awards represent
our best estimates, but these estimates involve inherent uncertainties and the
application of management's judgment. As a result, if factors change and we use
different assumptions, share-based compensation expense could be materially
different in the future.

We account for forfeitures when they occur. We have elected to recognize
share-based compensation expense for service-based awards on a straight-line
basis over the service vesting period. We recognize compensation expense for
awards subject to performance conditions using the graded attribution method.

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Business combinations


The purchase price allocation for business combinations requires extensive use
of accounting estimates and judgments to allocate the purchase price to the
identifiable tangible and intangible assets acquired and liabilities assumed
based on their respective fair values. We determine whether substantially all of
the fair value of the gross assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets. If this threshold
is met, the single asset or group of assets, as applicable, is not a business.
If it is not met, we determine whether the single asset or group of assets, as
applicable, meets the definition of a business.

We account for business combinations in accordance with ASC, 805, Business
Combinations. The results of businesses acquired in a business combination are
included in our consolidated financial statements from the date of the
acquisition. Purchase accounting results in assets and liabilities of an
acquired business generally being recorded at their estimated fair values on the
acquisition date. Any excess consideration over the fair value of assets
acquired and liabilities assumed is recognized as goodwill. Transaction costs
associated with business combinations are expensed as incurred and are included
in acquisition related costs in the consolidated statements of operations. We
perform valuations of assets acquired and liabilities assumed and allocate the
purchase price to the respective assets and liabilities. Determining the fair
value of assets acquired and liabilities assumed requires management to use
significant judgment and estimates, including the selection of valuation
methodologies, estimates of future revenues, costs and cash flows, discount
rates, and selection of comparable companies. We engage the assistance of
valuation specialists in concluding on fair value measurements in connection
with determining fair values of assets acquired and liabilities assumed in a
business combination. During the measurement period, if new information is
obtained about facts and circumstances that existed as of the acquisition date,
changes in the estimated fair values of the net assets recorded may change the
amount of the purchase price allocated to goodwill. During the measurement
period, which expires one year from the acquisition date, changes to any
purchase price allocations that are material to our consolidated financial
results will be adjusted prospectively.

Good will and intangible assets


In connection with our acquisitions and asset purchase discussed within our
financial statements also included in this registration statement, we record
certain intangible assets. Identifiable intangible assets with finite lives are
amortized over their estimated useful lives on either a straight-line or
accelerated basis, depending on the nature of the intangible asset. Developed
technology, customer relationships, and trademarks with finite useful lives are
amortized on a straight-line basis. We periodically review the estimated useful
lives and fair values of our identifiable intangible assets, taking into
consideration any events or circumstances which might result in a diminished
fair value or revised useful life.

The excess purchase price over the fair value of assets acquired is recorded as
goodwill. We evaluate and test the recoverability of goodwill for impairment at
least annually, on October 1, or more frequently if circumstances indicate that
goodwill may not be recoverable. We perform the impairment testing by first
assessing qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the
fair value of its reporting unit is less than its carrying amount. We have one
reporting unit. If, after assessing the totality of events or circumstances, we
determine it is more likely than not that the fair value of a reporting unit is
less than its carrying amount, we perform the first step of a two-step analysis
by comparing the book value of net assets to the fair value of the reporting
unit. To calculate any potential impairment, we compare the fair value of a
reporting unit with it carrying amount, including goodwill. Any excess of the
carrying amount of the reporting unit's goodwill over its fair value is
recognized as an impairment loss, and the carrying value of goodwill is written
down.

Determining the fair value of goodwill is subjective in nature and often
involves the use of estimates and assumptions including, without limitation, use
of estimates of future prices and volumes for our solutions, capital needs,
economic trends, and other factors which are inherently difficult to forecast.
If actual results, or the plans and estimates used in future impairment analyses
are lower than the original estimates used to assess the recoverability of these
assets, we could incur impairment charges in a future period. In assessing the
qualitative factors, we consider the impact of certain key factors including
macroeconomic conditions, industry and market considerations, management
turnover, changes in regulation, litigation matters, changes in enterprise
value, and overall financial performance. No impairment of goodwill was
identified during the years ended December 31, 2021, 2020, or 2019.

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Impairment of long-lived assets


We evaluate the carrying value of long-lived assets, including intangible assets
with finite lives and property and equipment, whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. An impairment loss is recognized when estimated undiscounted future
cash flows expected to result from the use of the asset, including disposition,
are less than the carrying value of the asset. The impairment to be recognized
is measured as the amount by which the carrying amount exceeds the fair value of
the assets. In the fourth quarter of 2020, we performed an impairment test of
definite-lived trademarks which was triggered by our decision to rebrand certain
products. Specifically, management made a decision to rebrand the LendingQB and
LoansPQ products which are being replaced by the new "MeridianLink" branded
product line. As a result of the rebranding decision in December 2020, which was
determined to be a triggering event, we recorded an impairment equal to
substantially all of the total LendingQB and LoansPQ trademarks carrying values
of $5.4 million. Other than the trademark impairment mentioned above, there have
been no other impairments of long-lived assets during the years ended December
31, 2021, 2020, or 2019.

Income Taxes

We account for income taxes using the assets and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the consolidated
financial statements or in our tax returns. Deferred taxes are determined based
on the difference between the financial statement and tax basis of assets and
liabilities, as well as from net operating loss and tax credit carryforwards.
Deferred tax amounts are determined by using the tax rates expected to be in
effect when the taxes will actually be paid, or refunds received, as provided
for under currently enacted tax law. Changes in deferred tax assets and
liabilities are recorded in the benefit from income taxes.

We recognize deferred tax assets to the extent that these assets are more likely
than not to be realized. If they are not, deferred tax assets are reduced by a
valuation allowance. In making such a determination, all available positive and
negative evidence are considered, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies,
and results of recent operations. If it is subsequently determined that deferred
tax assets would be more likely than not realized in the future, in excess of
their net recorded amount, an adjustment would be made to the deferred tax asset
valuation allowance, which would reduce the provision for income taxes.

We account for uncertainty in income taxes recognized in our consolidated
financial statements by applying a two-step process to determine the amount of
tax benefit to be recognized which includes (a) the tax position must be
evaluated to determine the likelihood that it is more likely than not of being
sustained based solely on the technical merits of the position, and if so, (b)
the tax position is then assessed to determine the amount of benefit to
recognize in the consolidated financial statements. The amount of the benefit
that may be recognized is the largest amount that has a greater than 50%
likelihood of being realized upon ultimate settlement. The benefit from income
taxes includes the effects of any resulting tax reserves, or unrecognized tax
benefits, that are considered appropriate as well as the related net interest
and penalties.

We record tax-related interest and penalties, if any, as income tax expense. There were no significant interest or penalties recorded for the years ended
December 31, 20212020 or 2019.

Recent accounting pronouncements


See Note 2, "Significant Accounting Policies" to our consolidated financial
statements included in Part II, Item 8 included in this Annual Report on Form
10-K for a description of recent accounting pronouncements, including the
expected dates of adoption and estimated effects on our results of operations,
financial condition, and cash flows.

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Emerging Growth Company Status


We are an emerging growth company, as defined in the JOBS Act. Under the JOBS
Act, emerging growth companies can delay adopting new or revised accounting
standards issued subsequent to the enactment of the JOBS Act until such time as
those standards apply to private companies. We have elected to use this extended
transition period for complying with new or revised accounting standards that
have different effective dates for public and private companies until the
earlier of the date that it (i) is no longer an emerging growth company or (ii)
affirmatively and irrevocably opts out of the extended transition period
provided in the JOBS Act. As a result, our financial results may not be
comparable to companies that comply with the new or revised accounting
pronouncements as of public company effective dates. We expect to use the
extended transition period for any other new or revised accounting standards
during the period in which it remains an emerging growth company

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