Q4 2019 Earnings Call
Greetings and welcome to the Black Knight fourth quarter 2019 earnings call.
At this time, all participants are in listen only mode.
Reef question and answer session will follow the formal presentation.
A reminder, this conference is being recorded.
Now my pleasure to introduce your host Steven eager 10, Vice President of Investor Relations. Please proceed sir.
Thanks, Good afternoon, everyone and thank you for joining us for the Black Knight fourth quarter 2019 earnings Conference call. Joining me today, our Chief Executive Officer, Anthony to Gore, and Chief Financial Officer, Kirk Watson. Our results were released this afternoon and the press release and supplemental slide presentation had been posted to our website.
This conference call will include statements related to the expected future results of our company and are therefore forward looking statements.
Actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward looking statements are subject you are describing our earnings release form 10-K, and other SEC filings.
Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation 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. Your Black Knight Investor Relations website at Investor got Black Knight Inc. Dotcom I'll now turn it over the called the Anthony.
Thank you Steve Good afternoon, everyone and thank you for joining us for a fourth quarter earnings call.
I'd like to take some time today to discuss highlights from 2019 and our plans for 2020.
2019 was another solid year for Black Knight as we continue to execute against our long term strategic initiatives.
To drive growth through winning new clients cross selling to existing clients innovating with urgency and finally through acquisitions to further enhance our offerings.
From a financial performance perspective in 2019, we had adjusted revenue growth of 5.5% adjusted EBITDA growth of 7.5% and adjusted EBITDA margin expansion of 90 basis points.
This performance confirms the strength of the core fundamentals of our business and our ongoing ability to deliver for our clients and shareholders over the long term.
The pace at which we've delivered new solutions underscores our commitment to acting with urgency as we've said before we will develop solutions acquired technologies and partner with client whichever strategy helps us most quickly deliver the solutions that provide the greatest benefit to our clients.
As an example, we recently acquired software from Quicken loans to serve as the foundation for our next generation customer service solution.
We can loans as a JD power award winner for high customer satisfaction and mortgage servicing for the past six consecutive years.
We will make the software available to all MSP clients and quick and will be one of the first to use this new solution.
Additionally, quicken loans further extended their MSP contract with us and will be implementing our new default servicing fee service solutions as well as multiple data and analytics offerings.
Overall I'm proud of what we delivered an integrated in 2019, and we'll stay the course in 2020.
Moving on to sales. We finished 2019 with very strong sales in the fourth quarter and significant momentum heading into 2020.
We signed nine new MSP clients, representing nearly 500000 loans, which has the most new clients signed in a single year since 2013.
We also signed contract renewals with many of our top clients, including Wells Fargo U.S. Bank and S.P.S.
In total in 2019, we renewed over 11 million loans or put another way more than a third of the loans on M.S.P. were renewed to long term contracts last year.
We also had a very strong year with our origination software sales.
We signed 11, new a power clients with nine of those clients implementing a power now and we have a strong pipeline going into 2020.
One of her primary growth drivers continues to be cross selling our offerings to existing clients.
In fact in 2019 about two thirds of our total contract value sales were the result of cross selling to existing clients.
This includes 15 clients have signed contracts for servicing digital.
So we now have 21 climbed to be using this powerful solution.
Eight of those clients are now on production, which speaks both to the speed of the implementation as well as to our clients interest.
Moving from sales to implementation on the servicing side. We currently have nine MSP implementations and progress and are implementing home equity portfolios for five MSP clients.
Which means those companies I joined the ranks of our clients who realize he additional value they gain but having both are first mortgage and home equity portfolios on a single system.
On the origination side, we're implementing clients onto empower for all origination channels.
Retail home equity assumptions correspondent and wholesale.
The empower now implementations are progressing quickly with the most recent being completed and less than six months.
Next I'm going to move onto our plans for 2020.
We just had our annual sales kick off meeting this meeting reinforced her team the opportunity we have as one black Knight.
We have trusted and long term partnerships with our clients.
We have proven an integrated solutions that support the end to end mortgage lifecycle.
We have forward thinking colleagues with deep domain expertise.
In 2020, we will win in the mid tier and top tier markets with our industry, leading software data and analytics. We will also continue or accelerated pace of delivering innovative and integrated solutions to help our clients grow revenue expand margins and improve their compliance.
Thank you for your time today now I'd like to turn the call over to Kirk for a financial update.
Thanks, Anthony and good afternoon, everyone I'm now going to discuss our fourth quarter and full year 2019 financial results and our outlook for 2020.
Turning to slide three on a GAAP basis full year 2019 revenues were $1.177 billion, an increase of 6% compared to 2018.
Earnings before equity in losses of unconsolidated affiliates were $183 million compared to $168.5 million.
Net earnings were $109 million or 73 cents per diluted share compared to $160.5 million or $1.14 cents per diluted share.
Effective our indirect investment in Dun <unk> Bradstreet or Dnbi was a reduction in net earnings of $74 million or 50 cents per diluted share.
The Dnbi results reflect among other things the affected their purchase accounting adjustments restructuring charges and other non operating charges.
Net earnings margin was 9.2 per cent compared to 15.1%.
Now moving to the fourth quarter revenues were $300 million, an increase of 5% compared to prior year quarter.
Earnings before equity and losses of unconsolidated affiliates were $49 million compared to $43 million.
Net earnings were $13 million or nine cents per diluted share compared to $43 million or 29 cents per diluted share.
The effective our indirect investment and Dnbi with a reduction in net earnings of $36 million or 24 cents per diluted share.
Net earnings margin was 4.3% compared to 15.0%.
Turning to slide four I'll now discuss our adjusted results for the full year and fourth quarter.
Adjusted revenues were $1.178 billion, an increase of 5.5 per cent compared to 2018, adjusted EBITDA was $583 million an increase of 7.5%.
Adjusted EBITDA margin was 49.5% angry and an increase of 90 basis points.
Adjusted net earnings was $295 million, an increase of 6%.
Adjusted net earnings per share was $1.99 cents also an increase of 6%.
For the fourth quarter adjusted revenues were $300 million, an increase of 5% compared to the prior year quarter. Adjusted EBITDA was $149 million an increase of 6%.
Adjusted EBITDA margin was 49.5% an increase of 50 basis points.
Adjusted net earnings was $80 million, an increase of 8%.
Adjusted net earnings per share was 54 cents also an increase of 8%.
Adjusted net earnings per share reflects a five cents benefit related to a lower than planned tax rate primarily as a result, the two factors.
A reduction in our blended state rate that affected both our ongoing tax rate as well as a deferred tax revaluation adjustment and discrete tax benefits as a result, the filing our state and federal tax returns in the fourth quarter.
Turning now to slide five I'll discuss our software solution segment result.
In the fourth quarter adjusted revenues for the software solution segment increased 4% to $256 million, our servicing software solutions adjusted revenues declined by 3%. We saw the same growth drivers as in past quarters, such as new clients on the MSP platform organic loan growth at existing clients and higher revenue per loan but that girl.
It was more than offset by previously discussed quite de conversions.
In origination software solutions adjusted revenues increased 43% driven by new clients revenue from acquired businesses and higher transaction volumes in lending solutions.
Fourth quarter, adjusted EBITDA increased 5% to $152 million and adjusted EBITDA margin was 59.3% an increase of 70 basis points.
Full year 2019, adjusted revenues increased 5% to $1.012 billion.
And adjusted EBITDA increased 6% to $600 million.
Adjusted EBITDA margin was 59.2% an increase of 20 basis points.
Turning to slide six in the fourth quarter adjusted revenues for the data and analytics segment increased 11% to $44 million, primarily driven by strong sales execution across nearly all business lines and higher refinance volumes.
Adjusted EBITDA increased 8% to $12 million and adjusted EBITDA margin was 27.7 per cent compared to 28.4% in the prior year quarter.
Full year 2019, adjusted revenues increased 7% to $165 million adjusted EBITDA increased 6% to $42 million adjusted EBITDA margin was 25.4% compared to 25.6% in 2018.
Adjusted EBITDA for the corporate segment in the fourth quarter was $15.4 million compared to $15.3 million.
In the prior quarter and $58 million for the full year 2019 compared to $64 million in 2018.
Turning to slide seven I'll walk through our capital structure at the end of December we had cash and cash equivalents a $15 million total debt principle as of December 30, Onest was $1.555 billion.
We had revolver borrowings outstanding of $310 million and $440 million, a borrowing capacity remaining under our revolver. Our leverage ratio was 2.7 times on a gross basis and 2.6 times on a net basis.
Turning now to slide eight I'll walk through our outlook for 2020, which is consistent with the details I provided on last quarter's call.
Revenues and adjusted revenues are expected to be in the range of 1 billion at $190 million to $1 billion $214 million. Adjusted EBITDA is expected to be in the range of $589 million to $607 million.
Adjusted EPS is expected to be in the range of $1.97 cents to $2.06.
Additional modeling detailed underlying our outlook are as follows we expect interest expense of approximately $60 million to $63 million depreciation amortization expense of $141 million.
To $144 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting.
And finally, and adjusted effective tax rate of approximately 24% to 25%.
Although we do not provide quarterly guidance I want to provide you with some color as to how we expect to progress through the year.
We expect adjusted revenue growth in the first half to be at the low end of our 2020 guidance range with growth accelerating to the high end of our range in the second half of the year due to timing of implementation and the previously discussed headwinds.
Adjusted EBITDA is expected to be flat in the first half with growth accelerating to slightly above the high end of our guidance range in the second half of the year.
I'll now turn the call over to the operator for Q1 I.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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I Press Star too if you would like to remove your question from the Q4 participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
We ask that you please limit yourself to one question and one follow up question. One moment. Please while we poll for questions.
Our first questions come from the line of John Campbell Stephens. Please proceed with your question.
Hey, guys good afternoon.
Hey, so as far as the pipeline or kind of go live rather than at this point I mean, you guys had once Kirk I think you'd called out 35% or the 160.
Maybe coming on in 2020 that was a while ago. So I'm sure thing should probably change, but what's the best way to think about that as you kind of entered arm. It looks like from a phasing of your guidance, it's maybe a little bit more backend loaded.
Especially as you pass those headwinds, but is there anyway to frame up kind of a range or meter out how much is kind of coming out of that pipeline. This year.
Yeah, John It actually really is coming in squarely in the midpoint of that 30% to 40% range really as we expected admittedly things have moved around a little bit little bit within that some things have have moved up some things that pushed out a little bit new deals that come in but really it's coming in right. The midpoint of that range that we've been talking about for the path.
IRSA. Okay. That's helpful. And then could you just give us an update on I know you can you talk to the Pennymac legal situation, but maybe if you could tell us what you ended the year ended the quarter out as far as the loan count and MSP.
How much came off a penny Matt.
Oh, the loans came off of Pennymac that was 1.6 or 1.7 million loans. The total number of loans on MSP, including first and second is almost 34 million.
Okay excellent. Thank you guys.
Thanks, John.
Our next questions come from the line of Boes, Georgia KBW. Please proceed with your question.
Hey, guys. This is telling me join on for both I wanted to ask so with with the Pennymac. That's obviously, a large revenue headwind next year and yet the midpoint of your guidance still implies some modest margin expansion I'm 2020. So have you just been able to take out costs pretty quickly or what is able to you to kind of preserve that margin in any of an expanded a little.
Yes, Tommy we did.
You know like I said on the Q3 call. We're planning for it from an expense perspective and actions that we've been a planning for throughout the year and so we have been able to to manage our expenses in line and also grow so.
As we look at revenue coming off I'd start with saying our typical revenue drivers are still growing so we're still growing average revenue per loan were still.
Adding new clients onto the system still cross selling some of our new innovations into the system and so we're getting margin expansion from those as well and this is just one of the offset.
Okay, and then you guys also announced the the buyback authorization on do you consider that more of a an opportune opportunistic tool to deploy when when shares are weak or do you plan to be somewhat programatic with it.
What I would say Tommy is our capital allocation strategy hasn't hasn't changed it's still going to be focused on investing in growth, whether that's internal development or that's a tuck in acquisitions like we've done a and then and then if Theres capital Lastly, we'll look at whether we pay down debt or we buy back shares that we put the authorization in place because our prior authorization next.
Buyer in early February and so really from this point forward. If we were to go in the market I think it'd be more more regular way, meaning we'd be in the market as opposed to overly option opportunistic, but fundamentally the important messages capital allocation really hasn't changed we're going to focus on growth.
And then I knew where you're comfortable what's your leverage being is that right now around the two seven times.
Yeah, we are where we target three times, but I would say our comfort level is it certainly could go above that if we find an opportunity for investment we benefit as low as two and a half times in the past a year or two so anywhere in that range. I think is very is very manageable and I think is good for us.
Theres no spot level, we want to be at but anywhere in that range I think is very comfortable.
Got it thank you.
<unk>.
Our next questions or from the line of Bill Warmington of Wells Fargo. Please proceed with your question.
Hi, good afternoon, everyone.
So I did want that I did want to ask about the.
Origination software growth I know you viewed.
Put in a 21% for the full year 2019, just wanted to ask how the growth was specifically in the fourth quarter and add some color around the puts and takes.
Sure the origination business grew 43% in the quarter and frankly I begin by saying that's a business that has performed very well and we expect for it to continue to be to perform well. We're pleased with how how it's doing the growth. There was was new clients Bill the acquisition tuck in acquisitions that we did a as well.
Hi, refinance volumes in our exchange a new lending businesses I. It was a particularly strong quarter four implementations for Mpower now we've had quite a few that went into production in the fourth quarter and we had something some nonrecurring items that were about $4 million in the quarter as well.
Got it and then for my follow up question, just wanted to check and see whether there were any share repurchases built into the guidance.
There are not.
Excellent. Thank you very much.
Thanks.
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Our next question from from the line of Stephen Sheldon of William Blair. Please proceed with your question.
Hi, Thanks.
So first you know great strong pace or renewals on that servicing by this year. It sounds like you're renewed close to a third of the overall portfolio I. So just wanted to ask if you've gone through that process has there been any notable trends or changes in contract terms as the brunt new does MSP clients.
No there's there's nothing been changed so.
That comes to mind disease, the renewals are very strong.
I'd say the strength of our relationships with our clients.
Has never been stronger and it continues to grow as weve delivered more and more capabilities into the market and our clients are looking at us.
As thought leaders and innovators focused on their success.
Okay, and then on the continued strong growth trend and data and analytics I think you've ramped sales resources there in late 2018.
You talked about having a positive impact 2019 did you do anything similar there this year in terms of adding that sales resources or would you expect growth potentially slow some as you lap those sales resource investments.
Well, you're right Stephen we did hire them and we did get the results that we had anticipated in terms of the increased growth.
We've not hired additional ones this year and like anything you know, we look for having the right equilibrium of resources whatever the function is in terms of what we see the opportunity.
Being so we feel good about that like I said, our sales or sorry revenue growth has been very.
Very strong in Q3 and in Q4, good part of that was sales some of it was timing as Kirk talked on the Q3 call and certainly on this one.
Great. Thank you.
Thank you.
Our next question is come from the line of Andrew Jeffrey of Suntrust. Please proceed with your question.
Hi, guys good afternoon.
First question is just the is about Ava.
And specifically can you speak to the uptake you've seen by function.
S.P. versus LLS <unk> do you see clients, who who are on both platforms or use both technologies implementing Eva on both sides of the business or is it.
How does that generally work.
Uh huh.
The market demand from Eva has been very strong we're very excited about that.
And I wouldn't say you know in particular, so I'll start off saying that number the use cases.
Where weve developed skills for Eva have been around the origination process. So we started with that.
And what we're seeing with clients is as they see interest in a that depending on where they are in their lifecycle.
It has been the the tip of the spear in terms of creating new relationships with clients sometimes its drag.
In power sales and other times distract MSP sales so.
No. It's doing the role that we had hoped for as we talked about innovation. It was really building more more capability that we can cross sell to our I'll say core clients of MSP and empower.
But what we're seeing is the interest.
On some of the new innovations such as Eva such a servicing digital are also pulling in client and creating new.
Core relationships with them.
Okay. So much sticky is what it it sounds like.
Ads.
The capacity overall relationship.
It really it adds an excitement and you don't want I art sales we finished.
Second half the year in particularly Q4 very strong from selling perspective.
And what I think it is.
The momentum that we've been building in terms of the energy, we're putting into the market with our innovations.
While retaining our focus on our client is really resonating our frontline salespeople have a lot to talk about with clients and prospects with which is driving energy and engagement, but look I expect everyone that black knight to be selling not just the sales team I sell Kirk sells our president so things are.
Executive team cells.
So were.
One of the side benefits of innovation is creating excitement and it's fun and it creates a fund selling environment because of that.
Okay, and as a follow up I appreciate that.
In in DNA.
It looks like that business is starting to gain some traction I know Kirk you mentioned strong sales execution is there anything else to add share shift.
Yeah, I can't think the market's growing as fast as your revenue.
Sure what I would say is it sales execution, which is taking share which results in taking share. So that definitely is an element.
Of that of winning in the market I would say that in the fourth quarter. We did see a benefit from higher refinance volumes that added a few points and then we frankly the cross sell we've talked about this on prior calls the cross sell continues to to accelerate in DNA and in the fourth quarter. We had some some extraordinary cross sales.
Related to a new client deals as well as a renewal and so that added a few points as well so that can that can ebb and flow a bit but yes, it's a business where we have the confidence that we were talking low to mid single digits a year ago. We're now talking for 2020 were looking at a SaaS.
At mid single digit growth rate in data and analytics around those areas and that's that's without assuming anything around refinance volumes, that's really the core growth.
Thank you.
Our next question comes from the line of Ashish she but.
The bedrock of Deutsche Bank. Please proceed with your question.
Hi, Thanks for taking my question. So a question on the Cyclops acquisition.
I just wanted to better understand.
The we'd likely to think about it up I wish that thing decision and up.
As we think about that does it also make a much better bullish for integrating our cross selling and following two youre MSP customer base, because essentially helps agents to look at this off Kraton and then so so a refinancing and and home.
He solution. Thanks.
Thanks, Ashish, what I'd say in general with all of our innovations that we bring to market. It is for it to drive cross sales of all products and create a macro black Knight environment for our clients.
That's just helps him. So everything we're doing is really focus we've said many times, helping our clients drive revenue drive margin expansion and drive compliance.
And.
Cyclops the the future of customer service is changing with the proliferation of digital and.
How clients in Iraq the.
He access to data so.
Cyclops is a great starting point like I said, the Proofpoint is obvious right quicken loans have been a JD power.
Number one winner for six years solid and in servicing and so starting with that we we thought to be a good foundation for us to build on.
And like anything good customer service was one of the key elements for client retention and when you have clients. Obviously, you can cross some more.
Products and solutions to them such as origination so.
We do see that it will help we think it will help them.
Retainer clients, we think it'll help cross selling some of our other products.
Which will in turn help our clients.
Retain their customers and and grow their customer base as well.
That's very helpful and maybe just a quick question on their digital appeal that any.
Feedback on the digital solution.
Yes the.
There's been lots of interest in it from our clients. The power of it is the tight integration. So as often as we've talked about innovation with you we've talked about integration and that being so important.
So looking at any of the other point of sales in the marketplace Theres multiple databases that you've got to keep in sync between the point of sale and the loan origination system and Ferraris, It's very focused on empower our digital point of sale and so Theres. One database has nothing to keep insync, but in fact everything else that we're building around it is integrating to all the other back off.
This capabilities.
So when we talk about Eva and the excitement around Eva in terms of recognizing documents classifying documents automatically.
Take a picture with your mobile phone that can be wrinkles you could have your thumb covering part of the document it's still recognises what type. It is a classifies it appropriately it integrates with the rest of the yellow west environment and that's the part where.
Integration really drives value for our clients because it drives efficiency for our clients employees and a tries feature functionality for our clients customers.
That's very helpful. Thanks.
Thank you Ashish.
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Please press star one on your telephone keypad.
Our next question comes from the line of Glenn Greene of Oppenheimer. Please proceed with your question.
Thanks. Good afternoon, I was just told me the Pennymac situation.
Part of some things to the did you observe a full quarter traffic. It this quarter and then is there anyway, you could sort of maybe just give us an update on sort of what's happening with a lawsuit I don't know if you can talk about that at all but surgical looking for an update on the situation.
I think the for its hard to hear you Glenn on the first part, but I think you're asking about what the drag wasn't the fourth quarter. It was $5 million in the fourth quarter and as far as as an update on the situation.
Really there's you see motion is going back and forth.
But it's really going to it needs to play its way through the courts, and yes and will provide updates as they come but theres no. There's no new updates at this time.
Okay and then.
Third quarter call, you called out, including coming back 500 basis points of known headwinds to revenue growth does that still kind of the number that sort of baked into your outlook for 20 at this point.
Yes that is the number.
Okay, and then just a final one how much was the reflect benefits Oh west in the quarter.
It was four percentage points to origination in the quarter.
Okay, great. Thanks, a lot.
Thanks Glenn.
Our next question comes from the line of Geoffrey Dunn of Dowling and partners. Please proceed with your question.
Thanks, Good evening.
Kirk I wanted to follow up on your comment about the extraordinary cross sale success in Q4 for DNA.
Can you give any more color on.
The cross sell success rate, you're saying it it seems to me that at some point no DNA is almost kind of Vietnam Aon automatic out on the way the banking world in technology are going so what percent of your MSP sales now are including some sort of DNA addition.
Anything you can share on that front.
I would say that theres DNA in virtually all platform sales. So MSP in particular there'll be some DNA component to those deals and certainly there is more white space as we go forward for that particularly some of the more innovative solutions like the rapid analytics platform.
How about in terms of a.
There's some aspect of it is there any kind of a metric on.
Got adoption of a lot of DNA offerings.
Or how do you look at it in terms of extraordinary cross sale versus regular cross sell I guess.
Sure I would say these were these were threed three renewals or new client sales that were just that were a little outside of the norm with what was recognized in the quarter versus kind of regular way type deals. So that's why we brought that up the truth is we are embedding them in all deals is becoming standard equipment for some of the things like some analytics like.
I mean alert and other things that that become just a part of every deal but it's it's the white space is significant for sure. It's not a metric that I have at my fingertips as we sit here right now, though Jeff Okay. Thanks.
Our next question comes from the line of T. Anson Huang of JP Morgan. Please proceed with your question.
Hi, Thanks, So think of other stuff has been covered the just just curious in general for for both of you just.
We've heard from some of the core processors about how does a lot of monetization going on at the banks and financial institutions and embracing digital I'm. Just curious if that's if you're seeing that and if that's changing some of the buying behavior or the implementation cycles of of the work that you're doing or even if somebody other did.
Oh players or are being considered a little bit more of just just bigger picture question about.
Digital might be influencing your conversations with buyers an existing clients.
Sure.
Thank you to engine for the question.
Absolutely is now we signed 21 client.
With our digital offering today and as we go to lead in any of our selling or any of our capabilities. We always start with that it's something very current very much in demand by our clients and their customers that that typically is where we start and when you can see all the different.
Use cases that can pivot from digital.
Theres a lot.
I'd say virtually every business and we get insight as well from the Dun <unk> Bradstreet side on.
Everyone's looking at transformation right and they're looking at how to leverage data and how to leverage digital for that transformation. So certainly.
With Black Knight and two Jefferies previous question on.
On the use of data in the cross selling of it in our expectation of it we do want to bundled in every renewal, we do want it more and more and automatic part of a renewal that we do or a new sales that we do because it's the underlying foundation of the transformation and some of the products that we've built such as Hey, IP Leverages.
Data to help our clients run more efficiently to achieve their goals and with digital. It's also very powerful like we said before because of the retention effort from it.
Do you think in the past.
The stickiness factor of digital will improve customer service dramatically is what we believe and that's what our clients are believing as the world pivots more and more to purely digital versus having physical locations. So driving that long interactions on the digital channel is really critical and we've seen.
From some of our largest clients who are very measured on including some of the largest banks where.
There are very focused on the power of that engagement with their customers.
No that makes sense Anthony so I'm just as a quick follow ons and what you. Just said there is does it I know you had the buyback plan and that makes great sense. Just did it does it change your your your willingness or you're maybe what you're willing to pay.
For acquisitions of of digital assets or digital content is it change your thinking in the last.
Several months were quarters and your willingness to want to try and do that more.
Well, what I'd say is if there is anything that.
Out there of size more price that we thought could add value and facilitate our objectives, we'd be open to it so and if it was an asset that required a tremendous amount of integration and transformation to get the results out of it we wouldn't shy away from that the first step is that we've got to be confident and what it can.
Do for our clients and what it would do for our business and that's the the bigger say deciding factor for us versus the price or the size.
Got it thanks for the color.
Thank you and engine.
Our next question comes from the line up Chris Gamaitoni of Compass point. Please proceed with your question.
Yes for taking my call them most up in that.
Asked already but wondering if you.
But in any way.
Identify the potential materiality of the deal with Quicken I don't know if it's on a per loan basis or potential.
How it adds into the growth rate just.
Unclear to me how material that can be moving forward.
The way I would characterize it Chris is it we really put it in the innovation bucket, where and I would say that it will be it'll be something that we would look to cross sell through the entire MSP client base. It is something that you would contribute over the medium term frankly should be something that's monetized sooner.
Her versus later, because we think we'll do some work on it when using it as a foundation and then building upon it.
To make it something that is really world class for our clients and then I think we'll go out there is already interest in it as we sit here today. So I don't think it'll take a long time to roll out, but it's really going to be part and parcel to that innovation growth that we've talked about being part of the 6% to 8% and that we've talked about it in aggregate, but I think it's probably.
1% to 2% of growth each year that innovation is going to bring and we certainly push for that to be at the higher end of that versus the lower end and this is something that would contribute towards that.
Okay.
And is it is it a per loan type C or is it a standard contract interest which business would have fallen.
It will be and it'll be in servicing and it would it would end up being bundled with in the on a per loan basis. Okay. Thank you.
Thank you.
Our next question comes from the line of Kevin Kevin Cosmetic Ivy Zelman and Associates. Please proceed with your question.
Hey, guys. Thanks for taking my question I'm, just wondering I understand your comments on a 2020 revenue guidance.
Combined with the <unk> comments on quarterly cadence you mentioned, the lower gross in the front half and an accelerating towards the back half of the year and are you talking year over year growth or sequential because there was a big step up in revenue in the second quarter for 19. So it can kind of make a difference and how we think about it.
Sure I know its year over year. So is there it was really a year over year comment it relative to the guidance range for for 2020, and if you think about the what's driving growth and and how and what that cadence is going to be it's really a function of timing, it's a function of timing of the.
Five points of a nominal anomalous headwinds that we talked about so at the midpoint of our guidance range, which is a couple of percent, but for that 5% we'd be looking at 7% growth for the year.
So it's the timing of that which is more of a back half thing and then it's a timing of implementations, which are heavier towards the middle part of the year than they are the early part so.
To summarize year over year relative to our in your guidance range and then it's those couple of factors that are driving the timing.
Okay. So protect the thinking about the first quarter revenue will have you had to 4 million onetime or that'll go away I mean do you guys assume in your embedded in your guidance <unk> are you assuming rifai is going to fall off pretty quickly on the exchange and.
There are other products that have that component.
I don't think it's going to fall off that quickly I think rates have actually held relatively well and so volumes are still pretty good but if you look at from Q4 to Q1, it's more a function of yes, the penny Mac fully fully coming off do you have those onetime as we talked about are nonrecurring items.
In the fourth quarter as being kind of sequentially a couple of those those big things frankly, there's a bit of timing relative to our expectation on onto the power now deal, which implement go into production faster and recognize revenue faster.
And then enterprise and power. So there's a few of those things that would would step you down from that Q4 rate down to where we expect Q1 to be which is like reset at that low end of the.
We will enter the full year range.
Oh, Okay, what was their pennymac revenue in the fourth quarter I was I think maybe I was thinking all that was gone one mark yeah. They deconverted at the one model okay.
Okay, and then and the other thing yes, Yes go ahead.
Oh, Yeah go ahead I was just gonna they may want to follow up question fitting I'll go on go ahead of the follow up. Okay are you just broadly speaking professional services heading into 2020 I'm any major you know shifts relative to 2019.
I can you repeat that question.
Terms or professional services revenue in 2020, any any broad trends you will point out for for guidance purposes, no it'll be the typical things that drive professional services, our timing of implementation. So they will go from work on the implementation and being deferred to.
To actually be ongoing more consulting type services.
There's elements of that that can cause ebbs and flows but no broad based trends around demand for professional services.
Okay. Thanks, a lot.
In Q.
At this time I would like to turn the call back over to Mr., Anthony Dearborn for closing comments.
Thank you in closing I am confident in our ability to grow market share continue delivering significant value to our clients through our powerful and integrated solutions and by acting with urgency to support their success. These efforts will drive long term growth and create value for our shareholders. Finally, I'd like to thank my colleagues for their extraordinary work and commitments.
For our clients I'd like to thank our clients for their trust in partnership.
Lastly, I'd like to thank our shareholders for their ongoing support.
Have a great night.
This concludes today's topic you may disconnect. Your lines at this time. Thank you for your participation have a great evening.