Q3 2019 Earnings Call
Greetings and welcome to the Black Knight third quarter 2019 earnings call.
Hi, all participants are in listen only mode. A brief question answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Steven <unk>, Vice President Investor Relations. Please proceed sir thanks, Good morning, everyone and thank you for joining got to the Black Knight third quarter 2019 earnings Conference call. Joining me today, our Chief Executive Officer at major bore and Chief Financial Officer Kirk Larsen.
Our results released this morning.
Yes relief and supplemental slide presentation posted to our website.
This conference call include statements related to the expected future results of our company and are therefore forward looking statements. Our actual results may differ materially from our projection due to a number of risks and uncertainties. The risks and uncertainties that forward looking statements are subject to our describing our earnings release Form 10-K and other FCC.
Filings.
Today's remarks, well also include references to non-GAAP financial measures additional information, including reconciliations between non-GAAP financial information to the GAAP financial information is provided in the press releases and supplemental slide presentation.
This conference call will be available for replay via webcast through Black Knight Investor Relations website at Investor that Black Knight, Inc. Dot com, but I'll turn over the call to Anthony.
Thank you Steve Good morning, everyone and thank you for joining us for a third quarter earnings call.
Overall this was another solid quarter, despite facing near term headwinds the core fundamentals of our business remains strong.
Over the last two years, we had amplified our focus on delivering innovative solutions that will further our position as a leading provider of software data and analytics to the markets we serve.
Today, I'm going to give an update on each from major lines of business.
Provide an update on the recent announcement and sure feedback from the N.B.A. Conference that was held last week in Austin, Texas.
I'll begin by discussing our industry, leading servicing software business, which represents 70% of our overall revenue. It continues to be the cornerstone of our company.
By focusing on delivering best in class comprehensive capabilities, an exemplary client service, we have built a market position with our MSP platform that is second to none.
To illustrate that fact msps market share for first mortgages has grown from 49% in 2010% to 63% as at the end of the third quarter.
And the home equity market share has increased from 6% in 2010% to 19% at the end of the third quarter.
As I've said on previous calls.
We're committed to growing our market share by focusing on winning the top 25, Servicers core not currently using MSP and adding new mid tier servicers to our client list.
With that and we have signed six clients. So far this here and I'm confident that with our proven and comprehensive solutions. We will continue to win in the market with top tier and mid tier servicers.
Well, we're focused on adding new clients to the M.S.P. family were equally focused on retaining and growing our relationships with existing clients.
For example, we recently signed a multiyear renewals with Flagstar Bank, a top 15, MSP client and the fifth largest sub server and the country.
And with U.S. Bank, a top five MSP client.
Over the years, we've developed a solid reputation for successful implementations, which is a differentiator for black Knight. We're currently working on implementing first mortgage portfolios for seven new clients and home equity portfolios for eight new and existing clients.
Next I'd like to give you an update on our progress selling or industry, leading servicing digital lab.
We currently have a clients using servicing digital and we've signed contracts with nine additional clients and we continue to add to our strong pipeline.
To put this in perspective over the next couple of years. The expected revenue from servicing digital alone will be similar to that of a top 15 MSP client.
Demonstrating the value that can be created through innovation.
Next I'm going to talk about our origination software business, which represents 16% of our overall revenue and represents a tremendous growth opportunity for black Knight.
Over the past two years, we have significantly enhanced our existing products and fill product gaps both through internal development and acquisition to create an integrated end to end origination suite that no other company can match.
What makes the addition, and integration of these capabilities. So exciting is that it has enabled us to double the total addressable market and the origination software business.
As an example, we recently acquired Compass analytics, which offers an advance product pricing and eligibility engine for P. P E engine.
Pipeline risk management and MSR valuation.
In addition to expanding our reach in the capital market sector. This acquisition establishes end to end, calling activity and pricing from originators to investors and by integrate encompasses P.P.E. Amgen and turn power.
We are able to significantly enhance our industry, leading hello Wes.
And recent meetings, we have received extremely positive feedback on the compass analytics acquisition and the power of the solution it brings to black Knight.
We continue to have momentum selling in power to the top 50 lenders, while making significant progress in the mid tier market with our empower now offering.
In fact, we signed three new and power now deals in the third quarter and seven so far this year.
We expect to sign a few more before year end and are confident we will deliver on the commitment we made to sign eight to 12, new Mpower now deals in 2019.
These ones further demonstrate our ability to gain new clients and all tiers of the lending market.
Next I'm going to talk about our data and analytics business, which represents 14% of our overall revenue.
Our DNA business had a strong third quarter with growth of more than 9%.
This growth was the result of gaining new clients through competitive takeaways cross sales.
Delivering new and innovative products and integrating them with our key platforms.
Some examples include property tax data integrated into in power.
Our lean alert data integrated into MSP.
And our property data integrated into servicing digital.
Next I'd like to update you on a recent announcement.
We take our responsibilities to protect our stakeholders very seriously.
My second we kept black Knight Pennymac loan services notified us that they were working on an MSP replacement.
Soon after we noticed some anomalies in the usage of MSP and began and more in depth review, which uncovered actions by Pennymac that showed there in proper use of the MSP system to unfairly accelerate the development testing and implementation of Pennymac system.
Even after we identified these violations we attempted to reach a long term agreement that would allow us to continue a business relationship with Pennymac.
In September we determined that were unable to agreed to terms that would protect our trade secrets, our business and our shareholders.
As a result yesterday, we filed a lawsuit against Pennymac for breach of contract and misappropriation of trade secrets.
Pennymac de converted from MSP at the end of October .
While we work diligently to achieve a different outcome as you would expect we have been working in parallel to take the necessary expense actions to protect our margins, while not affecting our ability to continue innovating and providing superior support to our clients.
Before I conclude my comments I want to provide an update compliant and prospect meetings. We had at the recent mortgage Bankers Association annual conference in Austin, Texas.
The tone of these meetings was very positive and the feedback from our clients is that our speed of innovation has dramatically increased and our partnerships are stronger than ever.
Additionally, a large prospect that we've been working with for some time recently told us during a meeting that we're definitely not the same black Knight. They knew in the past and were impressed with the progress we have made over the past two years.
In closing I am confident in our ability to grow market share and continue delivering significant value to our clients through our powerful and integrated solutions and by acting with urgency to support their success.
I'm also confident that those efforts will drive long term growth and create value for our shareholders. Thank you for your time today now I would like to turn the call over to Kirk for a financial update.
Thank you Anthony and good morning, everyone today Im going to discuss our third quarter results and our outlook for 2019.
Turning to slide three on a GAAP basis third quarter revenues were $299 million, an increase of 6% compared to the prior year quarter.
Earnings before equity and losses of unconsolidated affiliates were $49 million an increase of 14%.
Net earnings were $37 million, a decrease of 13% diluted net earnings per share was 25 cents a decrease of 14%.
The effective our indirect investment and Dun <unk> bradstreet or Dnbi was a reduction of net earnings of $12 million or eight cents per diluted share. The DMB results reflect among other things the incremental amortization relate to the application of purchase accounting as well as onetime restructuring charges.
Net earnings margin was 12.5% a decrease of 280 basis points.
For the year to date period revenues were $877 million, an increase of 6% compared to the prior year.
Earnings before equity and losses of unconsolidated affiliates were $134 million an increase of 6%.
Earnings were $96 million or 65 cents per diluted share a decrease of 24%.
Effective the Dnbi investment in the year to date period was a reduction in net earnings of $38 million or 25 cents per diluted share.
Earnings margin was 10.9% a decrease of 430 basis points compared to the prior year as it relates to Dnbi beginning this quarter, we're no longer reporting on a one quarter lag so results for the third quarter and year to date reflect the dnbi results for those respective periods.
Turning to slide four I'll now discuss our adjusted results for the third quarter and year to date period.
Third quarter adjusted revenues were $299 million, an increase of 6% compared to the prior year quarter, adjusted EBITDA was $150 million an increase of 8%.
Adjusted EBITDA margin was 50.1% an increase of 110 basis points.
Adjusted net earnings were $76 million, an increase of 7% or 51 cents per diluted share an increase of 6% and finally third quarter capital expenditures were $23 million.
For the year to date period, adjusted revenues were $878 million, an increase of 6% compared to the prior year period, adjusted EBITDA was $435 million an increase of 8%.
Adjusted EBITDA margin was 49.5% an increase of 110 basis points and adjusted net earnings were $215 million increase of 6% $1.45 cents per diluted share an increase of 5%.
And finally capital expenditures were $69 million.
Turning now to slide five I'll discuss our software solutions segment results.
Third quarter adjusted revenues for the software solutions segment increased 5% to $257 million, our servicing software solutions had adjusted revenue growth of 1% driven by loan growth in our core servicing software solution from new and existing clients as well as higher average revenue per loan.
This growth was partially offset by lower ancillary revenues and transaction volumes at our core servicing solution lower specialty servicing volumes and the client deconversion, an early client termination that we mentioned on our second quarter earnings call.
Origination software solutions adjusted revenues increased 25% driven by new client growth a contract termination fee related to a client that was acquired in our loan origination software business and the benefit of higher refinance volumes in our exchange and lending businesses.
Adjusted EBITDA increased 6% to $153 million and adjusted EBITDA margin was 59.5% an increase of 20 basis points.
Year to date adjusted revenues in the software solutions segment increased 6% to $756 million adjusted EBITDA increased 6% to $448 million well adjusted EBITDA margin increased 10 basis points to 59.2%.
Turning to slide six third quarter adjusted revenues for the data and analytics segment increased 9% to $42 million driven by growth across nearly all business lines.
Adjusted EBITDA increased 7% to $11 million adjusted EBITDA margin was 25.1% compared to 25.5% in the prior year quarter.
Year to date adjusted revenues increased 6% to $121 million adjusted EBITDA increased 6% to $30 million, while adjusted EBITDA margin was 24.6% in both periods.
Adjusted EBITDA for the corporate segment in the third quarter was $2 million favorable compared to the prior quarter driven by lower incentive based compensation.
Year to date adjusted EBITDA for the corporate segment was $6 million favorable compared to the prior year period.
Turning now to slide seven I'll walk through our capital structure at the end of September we had cash and cash equivalents of $10 million.
Total debt principle as of September Thirtyth was $1.644 billion, we had revolver borrowings outstanding a $416 million and $334 million a borrowing capacity remaining under our revolver.
Our leverage ratio was 2.9 times on a gross basis and 2.8 times on a net basis.
Turning to slide eight I'll discuss our outlook for 2019, which remains unchanged from the guidance. We provided last quarter with exception of our adjusted earnings per share, which is a bit higher than what we guided last quarter.
GAAP revenues are expected to be at the low end of the original guidance range of $1.177 billion to $1.199 billion.
Adjusted revenues are expected to be at the low end of the original guidance range of $1.178 billion to $1 billion $200 million.
Adjusted EPS is expected to be in the range of $1.92 cents to $1.94 cents and adjusted EBITDA is expected to be at the low end original guidance range of $581 million to $598 million.
Additional modeling details underlying our outlook are as follows we expect interest expense of approximately $65 million.
Depreciation and amortization expense of $136 million to $138 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting.
And adjusted effective tax rate approximately 24% to 25%.
And finally capex of approximately $105 million with that operator. Please open the line for Q1 day.
Thank you we would now conduct a question answer session. If you like to ask a question. Please press star one on your telephone keypad.
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For participants and speak to equipment, you may be necessary to pick up your handset before question just starkey one moment, while we pull for questions.
Our first question comes from 10, Jen Wong with JP Morgan. Please proceed with your question.
Hi, good morning, Thanks for all the.
All the details I know, you're not going to give us 2020 guidance per se, but I know there's some moving pieces was maybe we can talk about it really quickly here you have I know we had that one servicing client you convert the second quarter, we have pennymac it sounds like in October .
Then there is the backlog conversion front for next year. So can you just quickly maybe help us with.
If there's any change in the backlog conversion and what you talked about in the past as well as the impact of some of them. The revenue attrition that that you called out as well as the term fee compares that we should consider I think I heard one for a little less in the third quarter.
Sure attention, it's Anthony I'll take it.
As you can match, we haven't finished our budget process for 2020, so won't be providing specific guidance, but we do have some visibility and to drivers of growth for next year and based on what we see 2020 would be a strong year for black Knight without the extraordinary and anomalous headwinds that we talked about and you referenced on the past two earnings.
Call.
The growth drivers are the same that we always talk to you about in terms of price organic loan growth.
Revenue from implementing signed clients in new sales related to new and innovative solutions were bringing.
As well as the attrition, which we usually have seen historically around 2%.
But the other dimension is the extraordinary an anomalous headwinds for 2020 and.
And you cover them off its the deconversion of the specialty servicing client, we talked about in second quarter call.
The MSP client that was acquired by non MSP client pennymac situation and the Ditech loans that were we are assuming.
We'll go to shell point in connection with NRG is acquisition of died tech.
Their plans are finalized, but we are assuming the loans will go off.
To shell point for planning purposes, and these have headwinds total represent about 5% of revenue and so.
I look at us at the fundamental underlying strength of the core business hasn't changed it's very strong 2020 like I said would have been a very strong here.
If it wasn't for the unusual.
Headwinds that will cloud the performance.
Great. Thanks for that is extremely helpful. So thinking about that 5% you think you both mentioned you your ability.
Your cost structure for Pennymac and things like that so maybe youre.
The levers that you can pull the visibility there how much can you protect the bottom line with those headwinds.
To engine I would say given the visibility we had into the Pennymac situation. It's something that we have been have been looking into and working on.
Diligently as as a leadership team here and so I would say that the actions that we're looking at our our our broad based we're looking at sort of every every pocket that we can to increase the efficiency of the organization in light of some of these headwinds and so it's really across the board around.
Streamlining facilities and in a variety of other actions that I think you would expect that we would take but it's something that certainly we didnt just start last week, but it's been something that we've been working on our overtime to to protect our margins.
Good I'm sure that's the case, thanks for the uptick.
Thanks, Tim Thank you.
Our next question comes from John Campbell with Stephens. Please proceed with your question.
Hey, guys good morning.
Good morning, John Hey, So I went through all the the legal documents on any Mac. It looks like some really questionable behavior, there, but I know you really can comment on that I saw the depending Mexico's found some jobs and their press release, but hopefully you guys take the the high road and let what appears to be I guess, an opening Chuck case kind of play its course, but my question here is on the moving parts with.
The macros.
I will make sure I get everything down right last quarter. When you guys said the $16 million the non core client de conversion is that related to pennymac.
It was not.
Okay. So that's how that was a John that was the specialty servicing client the deconverted at the end of June .
Okay got it. So this is I guess the way to size. This up if we just kind of annualize the impacts was about a 33 million or so headwind from Penny Mac is that right way to think about it.
Correct.
And then I think thats just on the servicing side and correct me, if I'm wrong, there, but I.
I think there also a correspondent.
Customer within origination.
It's safe to assume that that's probably off the table as well.
Yes, that's a theres a contract through the third quarter of next year, and then that revenue will go away as well, Okay and can you help maybe size up the extended that.
It's a couple of million dollars.
Okay.
And then the last question I have here on compas analytics I've seen some stats out there that there were maybe doing about 10 or 11 million or so is that about the right revenue contributions we should should we expect to expecting in there and is there any kind of deferred revenue swings on that.
There are no deferred revenue swings on that I would say rather than be somewhat specific I would say so it's similar to prior tuck in acquisitions that we acquire because they have innovative technology and frankly on compass, where we're actually really excited about it and our clients have proven to be very excited about it as well from the the opportunity to.
Due to integrate within power the theres, a bit of data and analytics opportunity as well as well as some connectivity through the MSR valuations with with servicing so yes tuck in acquisition a wall, specifically quantify because frankly, it's already being integrated and so we'll just measured as part of the origination business going forward.
Okay. That's helpful. Thanks, guys.
Thanks, John I.
Our next question comes from Bill Warmington with Wells Fargo. Please proceed with your question.
Good morning, everyone.
So.
The first question I have few was are you aware of any other clients who are working on an MSP replacement.
No.
And with this one like I said, we were notified in two weeks after I joined to over a year in half ago, we had visibility into what was going on and.
And so as I sit here today I'm not aware of any other client that is developing their own system.
We're.
And as you can imagine we're looking and that were.
Specifically to see if there any trends and we feel very confident that there aren't any.
So very positive about the momentum that we've made over the last couple of years here and and that we're seeing that from our clients in our prospects you know.
Ask if you asked me to ticket one step further and asked me that would we signed another top 25 client or lose a top 25 client I bet on US winning every time, we're very confident about that.
I had a as a follow up I just wanted to make sure I'd hi.
Did the math in terms of the the fourth quarter impact from a penny Mac that looks like it five or 6 million.
That's correct.
Okay.
Thank you very much.
Thank you.
Once again, ladies and gentlemen asked a question. Please press star one on your telephone keypad.
Our next question comes from Jason Dilute with Piper Jaffray. Please proceed with your question.
Thanks for taking the question.
Looking for a little bit more color on the implementation pipeline over the next couple of years any updates there and kind of the cadence and timing of of the pipeline Edwards has there been any meaningful change or how's that looking.
Hey, Jason No. We are on track things are going to ask for schedule.
Yes, Jason what that translates to is basically the same range that we it's I've been talking about full revenue from implementations next year, so in that 30% to 40% of that old backlog number.
All right. Thanks, and then can we get an update on the competitive environment for the mortgage origination software just how is that coming along and then also for the large originators. What's your appetite for outsourcing. If you can just give us any color on how things are going there.
Sure.
I'd say, we continue to do well.
In my prepared remarks, I talked about the seven empower now clients that we signed so far this year, obviously, U.S. bank, which we announced earlier this year. So we're very pleased with the the traction that we're getting in what I'd say is with the acquisition specifically.
With the recent one with compass analytics.
At our at the NPL conference spoke with many clients and prospects. There's a lot of excitement about that and we're looking at creating a lot of capability I can get into later.
With with that and our other innovations in terms of really.
Creating.
Streamlined capability that highlights the functionality of the innovation, but also the integration of it as well.
Team feels very good about the pipeline on loan origination side.
Our.
The like I said, the add on capabilities that we've brought and the way we've integrated mall.
It's really blurring the lines for us in terms of what was in LLS before in terms of what's the whole solution look like and that's really exciting thats, what our clients want that's what our prospects are looking for so we feel good about that and we continue to have conversations as well with the large originators as well as you can imagine.
The large ones take longer to signed is.
Yeah.
There's just inertia as well as.
Just risk of change, but what I'd say for the most part is.
Our prospects that I've seen what we've built here is continued to congratulate us and.
Hey, applaud the innovations that we brought to market in a short period of time.
Sounds good thank you.
Thank you Jason.
Our next question comes from Bose George with KBW. Please proceed with your question.
Hey, guys. This is telling me joined on for Bose I wanted to ask about the the the originations technology within software solutions is obviously very strong growth money year over year basis, and you guys named a few of the sources. There can you actually quantify how much came from the higher refinances versus new clients coming onboard.
Sure. The biggest number was from new clients coming coming onboard in the quarter.
We also talked about the client termination fee, which was about $4 million.
The benefit of the refi volumes was a little less than half of that so read around a couple of million Bucks.
That benefited in the quarter, but the the growth was clearly driven by.
But by the clients that went live a new signings.
Okay. Thanks, and then switching over to the data and analytics I'm. They had another great year as well.
Sure Great quarter, if any of your basis I'm has anything to call out there and is that kind of high single digit growth rate sustainable over the near medium term.
Yeah, I would say that the third quarter was was a continuation of what I consider to be it starts with strong sales execution bye bye been grabowski and his team.
Added resources there in the fourth quarter last year in that clearly is paying dividends are there was a little bit that if you do you think about last quarter, we talked about a point or two that shifted into this quarter.
That benefit as a growth rate.
But but frankly, it's something where I think the execution has been strong the the proof points of integration with our software solutions has proven to.
Bare itself out and frankly, we're just flat out winning competitively and so I think all those point too good performance for data analytics I would still say.
Think of it in the mid single digits I would not expect to have 9% growth on a sustained basis, but but we're very pleased with the performance in that business over the course of the first nine months of the year.
That's great and then just just last one from me.
It doesn't always mentioned, the 70% kind of pro forma market share on the first lien servicing side on with what happened with do you have aside and I talked earlier in the areas that does that 70% still a number that you guys are are kind of looking toward.
Yes. We're currently at about 63% is what we have right now and if you said, let's look out the same time next year, where would we be I think we'd still be at 63% or higher.
Okay. Thanks.
Our next question comes from Chris Gamaitoni with Compass point. Please proceed with your question.
Hi, good morning, everyone.
Chris.
I'm trying to reconcile just the servicing revenue it looked like there was about 9 million dollar quarter over quarter drop the de conversion.
You disclosed 16 million annually, so that should be about 4 million dollar headwind.
Is there is the rest is just the transaction volume trying to get the rest of you know what else dropped and there wasn't any additional growth on top of that on sequential basis.
Sure. So you had you had the did the deconversion of the specialty specialty servicing clients you had the also the the MSP client was acquired by another MSP clients and that had the termination fee in in the second quarter slack. So that was sequentially a $6 million decline.
And then you had the the new so those would be that those to be the components.
Okay that makes sense.
The and just to clarify your.
Your guidance was unchanged from your prior guidance. So can we take that as the Pennymac loss in the fourth quarter was already included in your prior guidance or where they are positive offsets to that.
We were certainly thinking about that when we gave guidance the last time.
We also had a pretty high degree of confidence that we are going to get compass closed.
When we put that guidance together now certainly when we put that guys to get a last quarter, we are working diligently toward.
Long term business relationship with Penny Mac, and so when that Didnt happen that was a little different than what we expected and so with all the puts and takes I'd say, it's somewhat came out that we could hold our guidance at the at the low end of the range for revenue and EBITDA, which consider that basically a spot estimate so the low end of the range not not the lower end the range.
And then we were able to raise EPS because of the great work that our tax team has done on our tax rate as well so that flow through for the year as well as diligence around cost.
Okay. That's great and then just on the origination side and mentioning kind of the components of where the revenue growth came from.
Sequentially is it similar was mostly new clients coming on versus kind of the refinance jump versus a year.
Year over year, I think which are part of your prior statement.
Yes, yes that is that really is what it was it was it with new clients as well as we had we had compass for a month as well.
And then we have that and then we had the termination fee that I spoke of before which is $4 million absolutely.
And is that the Priorly announced part of the mostly second lien conversions or was it first lien conversions as well.
In origination is primarily it's primarily on the first lien side. Okay. Thank you so much.
Thanks, Chris.
Next question comes from Stephen Sheldon with William Blair. Please proceed with your question.
Good morning.
I appreciate the color on the headwinds you'll be facing next year, but just wanted to ask about potential offsets to that given other initiatives in the business and specifically would you expect.
New products, Eva servicing digital et cetera that maybe have a larger positive impact on organic revenue growth next year than you saw this year.
And then with the pace of implementations next year kind of trending higher can you maybe frame what type of support that could provide to organic revenue growth.
What I would say is absent those the five percentage points of anomalous headwinds I would say next year will be a strong year.
Certainly the drivers of you think about them.
And you think it kind of in context of price increases being you know a point than half or so.
Organic loan growth being half a point or so kind of in that range and then implementations where they are.
In that range that I spoke off before.
Then I do you expect that innovation will drive incremental revenue compared to what it did this year, meaning being higher growth than it did.
This year, so I think all those things considered.
But that being said five percentage points is on top of the typical couple of points of of attrition. I think is is the reason why we spoke of it so.
Strong year absent, those but I, but I think which gives us confidence frankly, as we look forward to 2021 and beyond that.
When the core drivers of growth remained strong and remained consistent.
And then we see the anomalies next year, but then and we worked our way through them and and and look forward to the future is what I would characterize it but it's all the fundamental drivers were excited about yeah, and I'd say the the actual innovations themselves are hitting full stride.
Compass analytics, we bundled into a number of deals already.
The prospects are very excited about the capabilities that it can bring.
Versus using third party or us not having a solution for.
With Teva, we had a regional banks that was starting to use it for classifications and.
In a very excited to 99.7 accuracy rate with it so we're starting to see real.
Real signs of this innovation.
Coming to market and most importantly, helping our clients right that's.
It was come back to that how do we help our clients grow the revenues how to help our clients improved margins how to help our clients remain compliant.
Fundamental driver for US here, that's what's enabled us to continue to grow market share over the years as well as investment in the product and.
We're pleased to see the progress of those innovations and how they will help next year.
Okay. That's helpful.
And then second can you can you just talked about the sales environment right now for empower and empower now and it has a delayed timeline for the new you're left form for from Fannie and Freddie slowed some potential conversions here or is that change and the need for compliance here at some point still driving a lot of positive conversations and.
Potential kind of new contract wins.
Yes, no I'd say, we continue to see strong demand for a loan origination systems and prospects out there are seeing the the leadership position we're taking.
From an innovation perspective, they see how all of it starts with them and we tie all the work we're doing in terms of how we'll help them compete and win in their markets.
Thanks don't want proprietary systems, you know, they're looking for commercial software and scalable efficient integrated and feature rich.
And we believe our solutions are well positioned to meet the needs of these.
Prospects, but.
The demand environment remains strong like said, we're picking up momentum we feel good about that in our focus on the mid tier.
As you had been paying dividends, our focus on adding corresponding capabilities to empower us pay dividends. So we feel very good.
But where we're at.
Thanks.
Thanks, Joe Thanks, Steven.
Once again, ladies and gentlemen ask a question. Please press star one on your telephone keypad.
Next question comes from Andrew Jeffrey with Suntrust. Please proceed with your question.
Hi, Good morning, I appreciate you taking question.
Yes.
Im wondering.
Did you how you think about strategic M&A at this point you've done some some nice tuck ins that are bringing new solutions.
Are there some transformative deals out there so the valuation notwithstanding which.
Which which might contemplate.
Kind of change that's reflection of the business.
Well.
Yes. Good question Andrew are.
I'd say our.
Focus on capital allocation remains the same and as we've talked about it was you know my main priority coming into the role and continues to be it. It's something we talk about at every board meeting. So it's not a set and forget policy that we have around capital allocation. We're always looking to see what makes sense and from our perspective.
As we said the.
The innovations that we create.
Often delivers the highest risk adjusted returns for us and similarly.
Tuck in acquisitions have proven to be very successful for us as well because what the tremendous brand that we have the great client relationships and scale.
We've gotten ability to take something I'll say relatively small and make a bigger when it comes out the other end of our engine. So we have been focused.
On that because that's what I consider low hanging fruit and that solving specific needs for our clients in our prospects.
That being said, we do look at all opportunities and being the real only end to end provider in the space. So you can imagine we get a look at.
Everything that does come up and so.
We will look.
Andrew you don't my background, specifically in terms of doing large M&A, it's something that.
Hi, I'm accustomed to doing and I see the value in it and at the same time I'm not trying to take a formula that.
I, followed previously my careers and saying Thats, what the right answer is here.
But instead commencing what's the right answer for us and for our clients.
Black Knight and if there is a large one that does make sense, we absolutely would look at it.
Okay I appreciate.
The philosophy and then you mentioned something interesting another question came up about the.
The sustainable growth and DNA.
Okay and May have been in your comments you're talking about.
Sure the integration of DNA and other solutions I Wonder if you could elaborate that elaborate on that a little bit is is that.
Do you see that is both a barrier.
The entry or I guess, a share gain driver as well as just an intrinsic revenue enhancement, we can hear more about.
Those types of integrations of DNA back into the.
Core MSP offerings.
Andrew its handheld take that again it was in my prepared remarks, and we yeah. We've talked about property tax day to integrate intend power lean alert date integrate into MSP and property data integrated into servicing digital.
Our mantra here was innovation integration and urgency and the innovation is obvious and the urgency I think is obvious as well.
Integration to me has always been obvious.
My career and.
As you look around at our client they're busy they have a lot going on as we keep looking at how do we simplify their lives. It comes from integration. It comes from removing friction and just making it easier for them to move forward. So it absolutely is a key strategy for us in DNA, but also in the rest of the business and and it's something that will continue.
To do.
I appreciate it thank you.
Thank you Andrew Thanks, Ed.
Our next question comes from Jack mid single with Susquehanna. Please proceed with your question.
Hey, good morning.
You know the strong.
Growth in DNA. This quarter was there anything in there transaction driven with a higher loan volumes in the quarter or so is it can you parse out maybe what's.
Better execution, better penetration versus maybe volume driven there.
Very little of it was volume driven maybe half a point or so theres not a lot of.
About volume driven component to the DNA business tied to origination volume so there's a little bit on the fringes, but it was not the it didnt it really wasn't a material contributor to it.
Okay, Great and then.
It was pennymac.
A material DNA.
Customer is there going to be any falling back I know, we got the origination pace as well, but is there anything to think through there on a go forward.
It's very very small it's several hundred thousand dollars tiny okay, great. Thank you.
Thanks Jay.
Our next question comes from Glenn.
Oppenheimer. Please proceed with you.
Yeah. Thanks. Good morning, just wanted to go back to sort of just thinking about a high level about 2020 in the puts and takes.
You talked about implementation backlog I think just sort of talked about providing further to 40% of it.
Hi, Matt effect kind of offsets the headwind.
You talked about pricing loan growth. Your long term guys. I was just six to eight I'm just wanted to make sure that you're actually going to see if some growth given the focus was point Packer get ahead in 2020, So my thinking about right.
Yes, we expect to grow in 2020.
That absolutely as the case, if you think about the buildup the building blocks that I spoke of.
Price organic loan growth the implementations.
And of course, there will annualize compass less the cup less the other headwinds yes. There is there is still grow.
Okay.
Let me just give us a high level update on Ah, that's Olin brass Sri progress, how that's going so far sort of thinking lighter EBITDAR growth start kind of thing.
Sure Glenn.
Yes, the aggressive actions that we took to transform Dun <unk> bradstreet are really showing through in the results were very excited about it the cost actions that we discussed on prior calls have materially improve the margins can I will walk you through them, but they're very impressive and the structural and strategic changes we've made contribute to a strong increase in the revenue growth and.
Third quarter. So again, we're very excited about the results that we're seeing from that and our investment in Dnbi.
Okay. Thanks, guys.
Thank you bye.
Our next question from Ashish Sabadra with Deutsche Bank. Please proceed with your question.
Thanks.
In your prepared remark you also talked about committing a new ERP lined up on could you update gavea end the DNA space on the data and analytics I was just wondering if you could provide some more color on that Frank what true back then was that.
Ah access to proprietary data that you don't think I don't have or is it also the combination that software as you've talked about so any color on what that competitive.
Sure she.
Most of it I'd say would be tied to the integration into our software and when we talk about integration.
We're integrating a number of things were integrating our products were integrating our service integrating our customer support decreasing our selling integrating.
Our billing and when you think true integration that covers so much.
And therefore can have a material impact for our clients so through our integrated selling efforts and our integrated.
Product development it we have seen the lift.
From the team. So we're going we're very excited about another great work that they've done.
This past quarter.
No thats, great and maybe just a follow up question does that hold integration piece and as we think about delineation softer that you've recently introduced that you'd still be less.
Is there more opportunity for more cross sell on on the Impala existing in followed customer bases that as the new and pilot now customers that you're signing in selling model that each of the last but also sending more data and other solutions as part of the origination selfish. Thanks.
Yes without question there is and.
If you if you think about it.
And I going beyond origination into servicing.
Really what we're doing is blurring all the lines between where one of our products starts and we're one of our product stops and.
And we're creating solutions not a bunch of standalone products and so the integration I think is powerful and will help drive.
Additional sales of of all of our products. So.
The one that's very top of mind with clients right now is around recapture and.
For clients who have.
You know borrowers and they want to.
I have them stay with them and refinanced alone.
We're bringing in all of these innovations that we've talked about on these calls.
Do you think of an MSP client they could use our ERP solution to identify mortgage customers that are good candidates for re fi than they can deliver that rifai offer to the mortgage customer through our servicing digital up right powerful drives the cross sell as a result of the acquisition of Ernst encompass analytics. We can also now present the exact rate the.
Zach term and the exact fees at the time. The offers made so the consumer has a personalized offer that enables them to take immediate action again, it's a first to market Black Knight innovation.
Customer accepts the offer they click a button that populate the data from MSP into the point of sale applications. They can upload their documents through Eva.
Which is all very powerful and empower us orchestrating all this activity and then it can also leverage or equal solution.
Depending on the regulations and the local jurisdiction right then little all backed MSP. So give you a real quick example of the use cases very much top of mind for our clients and you could see the power of that and.
And how that can cross sell so.
And our belief that as we come up with solutions, our clients will want to take the full solution versus has four different vendors that play a certain Roland and.
I know your question was it related specifically to data, but I just want to show the power of integration how it can drive the entire company forward.
That's very helpful. Thanks again.
Thank you Ashish.
Thank you at this time I would like to turn call back over to Mr., Anthony doable for closing comments.
Thank you as always I'd like to thank my Black Knight colleagues for the urgency they demonstrate and delivering innovative solutions to help our clients and I'd like to thank our clients for the strong partnerships. Thank you for joining us on the call today and for your interest in a great company enjoy the rest of your day.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and have a great day.