Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  Black Knight, Inc.    BKI

BLACK KNIGHT, INC.

(BKI)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector newsMarketScreener StrategiesAnalyst Recommendations

BLACK KNIGHT : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/09/2020 | 09:05am EST
The statements contained in this Quarterly Report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding expectations, hopes, intentions or strategies regarding the
future. Forward-looking statements are based on Black Knight, Inc. and its
subsidiaries ("Black Knight," the "Company," "we," "us" or "our") management's
beliefs, as well as assumptions made by, and information currently available to,
them. Because such statements are based on expectations as to future financial
and operating results and are not statements of fact, actual results may differ
materially from those projected. We undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise. The risks and uncertainties that forward-looking statements
are subject to include, but are not limited to:
•changes in general economic, business, regulatory and political conditions,
including those resulting from pandemics such as COVID-19, particularly as they
affect foreclosures and the mortgage industry;
•the outbreak of COVID-19 and measures to reduce its spread, including the
effect of governmental or voluntary actions such as business shutdowns and
stay-at-home orders;
•security breaches against our information systems;
•our ability to maintain and grow our relationships with our clients;
•changes to the laws, rules and regulations that affect our and our clients'
businesses;
•our ability to adapt our services to changes in technology or the marketplace
or to achieve our growth strategies;
•our ability to protect our proprietary software and information rights;
•the effect of any potential defects, development delays, installation
difficulties or system failures on our business and reputation;
•risks associated with the availability of data;
•the effects of our existing leverage on our ability to make acquisitions and
invest in our business;
•our ability to successfully integrate strategic acquisitions, including the
acquisition of Optimal Blue, LLC ("Optimal Blue");
•risks associated with the achievement of the intended benefits related to the
acquisition of Optimal Blue;
•risks associated with our investment in Dun & Bradstreet Holdings, Inc.
("DNB"); and
•other risks and uncertainties detailed in the "Statement Regarding
Forward-Looking Information," "Risk Factors" and other sections of our Annual
Report on Form 10-K for the year ended December 31, 2019 and other filings with
the Securities and Exchange Commission ("SEC").
The following discussion should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2019 filed with the SEC on February
28, 2020 and other filings with the SEC.
Overview
We are an award-winning software, data and analytics company that drives
innovation in the mortgage lending and servicing and real estate industries, as
well as the capital and secondary markets. Businesses leverage our robust,
integrated solutions across the entire homeownership life cycle to help retain
existing clients, gain new clients, mitigate risk and operate more effectively.
Our clients rely on our proven, comprehensive, scalable products and our
unwavering commitment to delivering superior client support to achieve their
strategic goals and better serve their customers.
We have market-leading vertical software solutions combined with comprehensive
real estate data and extensive analytic capabilities. Our solutions are utilized
by U.S. mortgage loan originators and servicers, as well as other financial
institutions, investors and real estate professionals, to support mortgage
lending and servicing operations, analyze portfolios and properties, operate
more efficiently, meet regulatory compliance requirements and mitigate risk.
We believe the breadth and depth of our comprehensive end-to-end, integrated
solutions and the insight we provide to our clients differentiate us from other
software providers and position us particularly well for emerging opportunities.
We have served the mortgage and real estate industries for over 55 years and
utilize this experience to design and develop solutions that fit our clients'
ever-evolving needs. Our proprietary software solutions and data and analytics
capabilities reduce manual processes, improve compliance and quality, mitigate
risk and deliver significant cost savings to our clients. Our scale allows us to
continually and cost-effectively invest in our business in order to meet
industry requirements and maintain our position as an industry-standard platform
for mortgage market participants.
                                       29

--------------------------------------------------------------------------------

Table of Contents


The table below summarizes active first and second lien mortgage loans on our
mortgage loan servicing software solution and the related market data,
reflecting our leadership in the mortgage loan servicing software solutions
market (in millions):
                                        First lien                                          Second lien                                    Total first and second lien
                                   as of September 30,                                  as of September 30,                                    as of September 30,
                               2020                      2019                       2020                     2019                       2020                        2019
Active loans                   32.7                      33.1                        3.4                     2.6                        36.1                        35.7
Market size                    53.1             (1)      52.6      (1)              12.9           (2)       13.3      (2)              66.0                        65.9
Market share                    62%                      63%                         26%                     19%                         55%                         54%

_______________________________________________________

Note: Percentages above may not recalculate due to rounding.
(1)  According to the Black Knight Mortgage Monitor Report as of September 30,
2020 and 2019 for U.S. first lien mortgage loans.
(2)  According to the August 2020 Equifax National Consumer Credit Trends Report
as of July 31, 2020 and June 2019 Equifax National Consumer Credit Trends Report
as of March 31, 2019 for U.S. second lien mortgage loans.
We offer our solutions to a wide range of clients across the mortgage and
consumer loan, real estate and capital markets verticals. The quality and
breadth of our solutions contribute to the long-standing nature of our
relationships with our clients, the majority of whom enter into long-term
contracts across multiple products that are embedded in their mission-critical
workflow and decision processes, particularly in the Software Solutions segment.
Given the contractual nature of our revenues and stickiness of our client
relationships, our revenues are highly visible and recurring in nature. Due to
our integrated suite of solutions and our scale, we are able to drive
significant operating leverage, which we believe enables our clients to operate
more efficiently while allowing us to generate strong margins and cash flows.
Our Markets
The U.S. mortgage loan market is large, and the loan lifecycle is complex and
consists of several stages. The mortgage loan lifecycle includes origination,
servicing and default. Mortgage loans are originated to finance home purchases
or refinance existing mortgage loans. Once a mortgage loan is originated, it is
serviced on a periodic basis by mortgage servicers, which may not be the lenders
that originated the mortgage loan. Furthermore, if a mortgage loan goes into
default, it triggers a set of multifaceted processes with an assortment of
potential outcomes depending on a mix of variables.
Underlying the three major stages of the mortgage loan lifecycle are the
software, data and analytics support behind each process, which have become
increasingly critical to industry participants. As the industry has grown in
complexity, participants have responded by outsourcing to large-scale specialty
providers, automating manual processes and seeking end-to-end solutions that
support the processes required to manage the entire mortgage loan lifecycle.
Business Trends and Conditions
COVID-19 Pandemic
On March 11, 2020, the World Health Organization ("WHO") declared the COVID-19
outbreak to be a global pandemic. In addition to the devastating effects on
human life, the pandemic is having a negative ripple effect on the global
economy, leading to disruptions and volatility in the global financial markets.
Most U.S. states and many countries have issued policies intended to stop or
slow the further spread of the disease.
COVID-19 and the U.S.'s response to the pandemic are significantly affecting the
mortgage and real estate industries. On March 18, 2020, the U.S. Department of
Housing and Urban Development ("HUD") and the Federal Housing Finance Agency
("FHFA") announced a 60-day moratorium on mortgage loan foreclosures and
evictions. Likewise, the FHFA also announced mortgage loan forbearance programs
for certain borrowers that allow mortgage loan payments to be suspended for up
to 12 months.
On March 27, 2020 the Coronavirus, Aid, Relief and Economic Security Act (the
"CARES Act") was signed into law in an effort to provide economic assistance to
workers, families and businesses and codified the actions of HUD and the FHFA.
Subsequent to the CARES Act, the Federal Housing Administration ("FHA") extended
the moratorium on mortgage loan foreclosures and evictions through at least
December 31, 2020. In addition, many states have implemented additional guidance
that extends their moratorium on mortgage loan foreclosures and evictions, and
additional extensions of these moratoriums may be implemented in the future.
There are no comparable events that provide guidance as to the effect the
COVID-19 pandemic may have, and, as a result, the ultimate effect of the
pandemic is highly uncertain and subject to change. We do not yet know the full
extent of the effects on the economy, the markets we serve, our business or our
operations.
                                       30

--------------------------------------------------------------------------------

Table of Contents


Black Knight Response and the Effect on Our Business
We continue to execute on our business continuity plans to address the
challenges related to the ongoing COVID-19 pandemic. Since March 2020,
substantially all of our employees have been working from home. We are following
the requirements and protocols published by the U.S. Centers for Disease
Control, the WHO and country, state and local governments. Our most important
priorities are the health and safety of our employees and helping the
communities where we work and live. We cannot predict when or how we will begin
to lift the actions put in place as part of our business continuity plans,
including working from home and travel restrictions, but we continue to offer
our clients the high level of service they have come to expect from us. We
believe our transition to working from home has been successful and has not
significantly affected our results of operations, financial condition, cash
flows or control environment as of and for the three and nine months ended
September 30, 2020.
The extraordinary effects of the broad-based response to the COVID-19 pandemic
have delayed the timing of certain revenues. Specifically, the current mortgage
loan foreclosure moratorium and forbearance plans offered as part of the CARES
Act are reducing the number of foreclosures being processed on our
BankruptcySM/ForeclosureSM and InvoicingSM software solutions for which revenue
is recognized as transactions occur. We currently estimate approximately $37
million in revenues may be delayed beyond 2020. Many of our clients are also
adjusting to working from home while experiencing refinance origination volume
increases as well as an extremely elevated number of customer service calls. As
a result, we initially saw delays to some of our implementation timelines, but
continue to make progress while many of our clients and team members continue to
work remotely. Our teams are focused on supporting our clients in this shifting
landscape and stand ready to deliver our solutions. We are also monitoring the
effects of the pandemic on our sales cycles.
In response to the foregoing revenue delays, we continue to tightly manage our
expenses, including minimizing discretionary spend and disciplined management of
personnel costs. To the extent the revenue delays continue for an extended
period of time, additional cost management actions will be considered and will
be dependent on the severity and duration of the revenue delays.
Our clients have realized there will be significant changes in how their
customers want to, or are able to, interact with them throughout the pandemic
and beyond. In reaction to these changes, our clients are prioritizing automated
technology solutions that enable them to remotely engage with their customers
and provide streamlined ways of performing the core functions of their
businesses, all while maintaining regulatory compliance in an environment that
is rapidly changing. We believe our solutions are well-positioned to help our
clients address these needs.
We partner with many of the industry's best lenders and servicers and believe it
is our duty to serve in a leadership role as we manage through this crisis and
beyond. From the start of the COVID-19 crisis, we have worked to provide
leadership on behalf of our clients and to provide them with actionable
intelligence, including our monthly Mortgage Monitor report and our McDash Flash
Forbearance Tracker. We have also published in-depth white papers, held town
hall meetings with our clients and have had frequent meetings with senior
executives at our clients, government agencies and industry associations. We
believe the in-depth data and insights we offer are essential for both mortgage
market participants and government entities as we work together to address the
economic ramifications of the crisis.
Our investment and innovation in digital mortgage loan solutions have made it
possible for a majority of the mortgage application, underwriting and closing
processes to happen online and remotely. Our industry-leading servicing system
and a mortgage loan contributory data set represents a majority of the U.S.
market and is modeled to represent the entire U.S. market. Our robust analytics
and seamless integration ties them all together and allows for real-time
visibility into the majority of active mortgage loans and a holistic view of the
homeownership lifecycle. The depth of our integrated software, data and
analytics enables clients to see what the effects of the pandemic mean for their
business and industry. Our clients use these robust solutions for modeling,
forecasting and reserve setting, which is critical, especially in this current
environment.
Market Trends
Market trends that have spurred lenders and servicers to seek software, data and
analytics solutions are as follows:
Integral role of technology in the U.S. mortgage loan industry. Over the past
few years, banks and other lenders and servicers have become increasingly
focused on automation and workflow management to operate more efficiently and
meet their regulatory requirements as well as using technology to enhance the
consumer experience during the mortgage loan origination, closing and servicing
processes. Since the start of the pandemic, our clients have become increasingly
aware that digital solutions are integral to their ability to stay connected
with their customer base in times when face-to-face interactions are not
possible. We believe technology providers must be able to support the complexity
and dynamic nature of the market, display extensive industry knowledge and
possess the financial resources to make the necessary investments in technology
and
                                       31

--------------------------------------------------------------------------------

Table of Contents


software to support lenders. This includes an enhanced digital experience along
with the application of artificial intelligence, robotic process automation and
adaptive learning.
Heightened demand for enhanced transparency and analytic insight. As U.S.
mortgage loan market participants work to minimize the risk in lending,
servicing and capital markets, they rely on the integration of data and
analytics with solutions that enhance the decision-making process. These
industry participants rely on large comprehensive third-party databases coupled
with enhanced analytics to achieve these goals. The pandemic is putting pressure
on the U.S. economy, affecting millions of American jobs and creating a
high-level of uncertainty in the volume of work that our clients are facing with
possible delinquent mortgage loans. Mortgage loan market participants are eager
for timely data and insights to help them plan and react to the changing
environment.
Regulatory changes and oversight. Most U.S. mortgage loan market participants
are subject to a high level of regulatory oversight and regulatory requirements
as federal and state governments have enacted various new laws, rules and
regulations. It is our experience that mortgage lenders have become more focused
on minimizing the risk of non-compliance with regulatory requirements and are
looking toward solutions that assist them in complying with their regulatory
requirements. We expect this trend to continue as additional governmental
programs and regulations have been recently enacted to address the economic
concerns resulting from the pandemic, and our clients have had to adapt their
systems and processes in record time to the shifting landscape. In addition, our
clients and our clients' regulators have elevated their focus on privacy and
data security while many of our clients' employees are working from home and in
light of an increased level of cybersecurity incidents. We expect the industry
focus on privacy and data security to continue to increase.
Our Business Segments
Our business is organized into two segments: Software Solutions and Data and
Analytics.
Software Solutions
Our Software Solutions segment offers software and hosting solutions that
support loan servicing, loan origination and settlement services. The following
table summarizes our software solutions revenues (in millions):
                        Three months ended September                                                    Nine months ended September
                                     30,                           % of segment revenues                            30,                           % of segment revenues
                            2020              2019              2020                    2019               2020              2019              2020                    2019
Servicing software
solutions               $   194.2$ 202.9              75%                      79%           $   574.2$ 615.4              77%                      81%
Origination software
solutions                    65.3             54.4              25%                      21%               175.1            140.8              23%                      19%
Software Solutions      $   259.5$ 257.3              100%                    100%           $   749.3$ 756.2              100%                    100%


Our servicing software solutions primarily include our core servicing software
solution that automates loan servicing, including loan setup and ongoing
processing, customer service, accounting, reporting to the secondary mortgage
market and investors and web-based workflow information systems. Our servicing
software solutions primarily generate revenues based on the number of active
loans outstanding on our system, which has been very stable; however, we have
some exposure to foreclosure and bankruptcy loan volumes, which can fluctuate
based on economic cycles and other factors.
Before the pandemic, foreclosure start volumes were already at historic lows.
Our servicing software solutions that are more sensitive to foreclosure volumes
were approximately 1% and 2% of our consolidated revenues for the three and nine
months ended September 30, 2020, respectively. As a result of the effects of the
broad-based response to the COVID-19 pandemic, we have seen lower
foreclosure-related transactional revenues due to the mortgage loan foreclosure
moratorium and expect this trend to continue due to the mortgage loan
forbearance plans offered as part of the CARES Act. As of November 3, 2020,
Black Knight's McDash Flash Forbearance Tracker estimated 2.9 million
homeowners, or 5.4% of all U.S. mortgage loans, were in COVID-19 mortgage loan
forbearance plans.
Our origination software solutions primarily include our solutions that automate
and facilitate the origination of mortgage loans and provide an interconnected
network allowing the various parties and systems associated with lending
transactions to exchange data quickly and efficiently. For our origination
software solutions, our loan origination system revenues are based on closed
loan volumes subject to minimum base software fees that are contractually
obligated, which limits our exposure to origination volumes. Some of our
origination software solutions are exposed to variances in origination volumes,
primarily related to refinance volumes due to the nature of the services
provided. Given the near record low level of mortgage loan rates, we have seen
elevated volumes related to refinance originations and expect this trend to
continue throughout 2020. Despite the initial decline with stay-at-home orders
and similar restrictive mitigation measures issued in various parts of the
country for an unknown duration, we have seen some improvement in purchase
origination volumes due to pent-up demand and the current
                                       32

--------------------------------------------------------------------------------

Table of Contents


interest rate environment. Our origination software solutions that are more
sensitive to origination volumes, primarily refinance origination volumes, were
approximately 5% of our consolidated revenues for the three and nine months
ended September 30, 2020.
Data and Analytics
Our Data and Analytics segment offers data and analytics solutions to the
mortgage, real estate and capital markets verticals. These solutions include
property ownership data, lien data, servicing data, automated valuation models,
collateral risk scores, behavioral models, a multiple listing service software
solution and other data solutions. Our data and analytics business is
predominantly based on longer-term strategic data licenses, other data licenses
and subscription-based revenues. For the three and nine months ended September
30, 2020, our data and analytics revenues were 17% and 16% of our consolidated
revenues, respectively. Our data and analytics solutions that are more sensitive
to fluctuations in home buying activity and origination volumes were
approximately 6% and 5% of our consolidated revenues for the three and nine
months ended September 30, 2020, respectively, and relate to services where we
provide data necessary for title insurance and other settlement service
activities.
Acquisitions
Collateral Analytics and DocVerify Acquisitions
On March 3, 2020, we completed the acquisition of Collateral Analytics, LLC
("Collateral Analytics"), a provider of real estate product and tools to support
appraisers, appraisal management companies, lenders, investors and government
agencies. The acquisition is integrated into our Data and Analytics segment and
enhances our real estate solutions and automated valuation model offerings.
On August 27, 2020, we completed the acquisition of DocVerify, a solution that
provides proof of the integrity of digital documents, enabling organizations
across a wide range of industries to streamline processes, safeguard sensitive
information and reduce costs. DocVerify is reported within our Software
Solutions segment and helps accelerate Black Knight's goal of digitizing the
entirety of the real estate and mortgage continuum as DocVerify's trusted and
proven digital document verification capabilities are integrated with Expedite
Close, our digital closing platform.
Refer to Note 2 - Business Acquisitions in Item 1 of Part I of this Quarterly
Report on Form 10-Q for additional information.
Optimal Blue Acquisition
On July 26, 2020, we entered into a definitive equity purchase agreement with
affiliates of private equity firm GTCR, LLC, to purchase Optimal Blue, a leading
provider of secondary market solutions and actionable data services. We also
entered into forward purchase agreements with Cannae Holdings, LLC ("Cannae")
and affiliates of Thomas H. Lee Partners, L.P. ("THL") (collectively, the
"FPAs"), whereby Cannae and affiliates of THL agreed to each acquire 20% of the
equity interests of a newly formed entity, Optimal Blue Holdco, LLC ("Optimal
Blue Holdco"), for a purchase price of $289.0 million. Optimal Blue Holdco was
formed for the purpose of acquiring Optimal Blue and certain affiliates.
On September 15, 2020, we completed a series of transactions and completed the
acquisition of Optimal Blue. In connection with the acquisition of Optimal Blue,
we contributed $762.0 million in cash and our Compass Analytics business to
Optimal Blue Holdco. In addition, Black Knight InfoServ, LLC ("BKIS"), our
indirect, wholly-owned subsidiary, provided $500.0 million in cash in exchange
for a note with Optimal Blue Holdco (the "OB Holdco Note"). The OB Holdco Note
bears interest at a rate of 6.125%, which is payable on a semi-annual basis
beginning March 1, 2021, and matures on September 1, 2028. Immediately prior to
the closing of the Optimal Blue acquisition, we, together with Black Knight
Technologies, LLC ("BKT"), our indirect, wholly-owned subsidiary, Optimal Blue
Holdco, Cannae and THL, entered into an Amended and Restated Limited Liability
Company Agreement of Optimal Blue Holdco (the "OB Holdco LLC Agreement"). As of
September 30, 2020, we own 60% of Optimal Blue Holdco.
Optimal Blue Holdco is subject to the consolidation guidance related to variable
interest entities as set forth in Accounting Standards Codification ("ASC")
Topic 810, Consolidation ("ASC 810"). We are the primary beneficiary of Optimal
Blue Holdco through our controlling interest and possess the rights established
in the OB Holdco LLC Agreement. As such, we control Optimal Blue Holdco and its
subsidiaries and consolidate its financial position and results of operations.
Intercompany transactions between us and Optimal Blue Holdco and its
subsidiaries are eliminated in consolidation. Refer to Note 2 - Business
Acquisitions in Item 1 of Part I of this Quarterly Report on Form 10-Q for
additional information.
                                       33

--------------------------------------------------------------------------------

Table of Contents


We have call rights on THL's and Cannae's equity interests in Optimal Blue
Holdco that are exercisable beginning September 15, 2023 at a call price equal
to the greater of (i) the fair market value of such interests and (ii) an amount
that would result in the multiple of THL's or Cannae's return on investment to
equal 2.0, as applicable. In addition, THL and Cannae have the right to put
their respective interests in Optimal Blue Holdco to (i) Optimal Blue Holdco if
there is a change of control of Black Knight or (ii) Optimal Blue Holdco, BKT or
Black Knight that are exercisable beginning September 15, 2023. We have the
option to satisfy the purchase price, which shall be equal to the fair market
value of such interest, in connection with the exercise of any put or call right
either in cash or Black Knight common stock other than a put in connection with
a change of control of Black Knight, in which case the purchase price is payable
only in cash. The equity interests will be settled at the current fair value at
the time we receive notice of the put election as determined by the parties or
by a third party appraisal under the terms of OB Holdco LLC Agreement.
Refer to Note 1 - Basis of Presentation and Note 2 - Business Acquisitions for
additional information.
DNB IPO and Private Placement
On July 6, 2020, DNB closed its previously announced initial public offering
("DNB IPO") and we invested $100.0 million in the DNB private placement. In
connection with the closing of the DNB IPO and the DNB private placement, our
limited partner interests in Star Parent, L.P. were exchanged for 54.8 million
shares of DNB common stock (the "DNB Investment"), which represents ownership of
13.0% of DNB. As of September 30, 2020, we have invested $492.6 million in DNB.
As of September 30, 2020, DNB's closing share price was $25.66 and the fair
value of our investment in DNB was $1,407.5 million. As of September 30, 2020,
assuming a statutory tax rate of 25.3%, the estimated after tax value of our
investment in DNB is $1,176.0 million. Refer to Note 3 - Investments in
Unconsolidated Affiliates in Item 1 of Part I of this Quarterly Report on Form
10-Q for additional information.
                                       34

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses

All news about BLACK KNIGHT, INC.
01/14BLACK KNIGHT : Seller Digital Platform Uses AI and Decisioning to Help Correspon..
PU
01/14BLACK KNIGHT : Seller Digital Platform Uses Artificial Intelligence and Decision..
PR
01/13VIDEO CHAT WITH HOUSINGWIRE : How Lenders Will Benefit From Black Knight's Acqui..
PU
01/11BLACK KNIGHT : Fully Digital, Contactless Real Estate Transactions a Step Closer..
PR
01/04BLACK KNIGHT : Launches Webhooks Automation Component for Its Optimal Blue API P..
PR
2020BLACK KNIGHT : Receives 2020 HIRE Vets Medallion Award
PU
2020BLACK KNIGHT : Delinquencies Improved Again in November 2020, But Nearly 2.2 Mil..
PR
2020BLACK KNIGHT : First Look at November 2020 Mortgage Data
PU
2020BLACK KNIGHT : Launches Mandatory Analytics, an Interactive Dashboard for Mandat..
PR
2020BLACK KNIGHT : Jefferies Starts Black Knight at Buy With $110 Price Target
MT
More news