Q2 2020 Black Knight Inc Earnings Call
[music].
Greetings and welcome to the Black Knight second quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
He's now my pleasure introduce your host Steve eager to Vice President Investor Relations at Black Knight.
Thank you Sir you may begin.
Thanks, Good morning, everyone and thank you for joining got the Black Knight second quarter 2020, <unk> earnings Conference call. Joining me today, our Chief Executive Officer at Leaderboard, and Chief Financial Officer. Kirk Larsen results were released this morning in the press release and supplemental slide presentation posted to our website.
This conference call will include statements related to the expected future results of our company. There are there for 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 to are described in our earnings release form 10-K in other FTC filings.
Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation between our non-GAAP financial information that the GAAP financial information is provided in the press release and supplemental slide presentation.
This conference call will be available for replay via webcast through Black Knight's Investor Relations website at Investor Dot Black Knight Inc. Dotcom, well now turn it over the quarter Anthony.
Thank you Steve Good morning, everyone and thank you for joining us for a second quarter earnings call.
Overall this was another solid quarter during which we continue to execute against our strategy and demonstrated that despite facing headwinds, resulting from the cobot 19 pandemic the core fundamentals of our business remains strong.
We continue to sign and implement new clients deliver innovative solutions and pursue strategic acquisitions.
Now, let me provide an update on her business.
And our servicing software business, we continue to sign clients to our industry, leading M.S.P. platform.
Since the beginning of the year for Servicers, representing more than 700000 loans selected MSP, including caliber our top 25 nonbank servicer.
As a result, our pilots now includes 18 of the top 25 Servicers.
These new sales are further evidence of our ability Todd both top tier and mid tier companies to our client list.
And our origination software business. We had continued success in the second quarter selling our in power and power now and are complimentary origination solutions to companies of all sizes.
As an example in April Carrington mortgage services, a top 50 originator selected and power at the Delaware.
Additionally, two lenders, including a current MSP client selected empower now that origination platform.
Our relentless focus on delivering innovative and integrated solutions and providing superior client support or the fundamental reasons were able to win new client and continually renew existing clients.
One specific renewal I'd like to call out is true.
Which was created from the merger of Suntrust and BBN tea and is now the sixth largest commercial bank in the country.
In addition to signing a multiyear renewal tourists also expanded its use of our solutions across the enterprise, including MSP empower lendingspace and several of our data and analytics offerings.
As part of tourists enterprise renewal the bank will be consolidating its BB NT origination volume onto our own power and lending space platforms. It's important to note that BB and he was a top 25 originator prior to the merger.
I am proud of how our sales team has embraced the current environment and has leveraged new ways to engage with clients and prospects. Our efforts have resulted in total new sales contract value, increasing double digits compared to last year.
We also continued to make progress with implementations, which are doing while many of our clients and team members continue to work remotely.
And our servicing software business. We currently have 10, new MSP implementations and five new home equity conversions in process.
We're also very pleased tough successfully completed the bank of America implementation this past week.
This is just another proof point of our ability to manage conversions to the largest servicers. We look forward to working with bank of America and building on our already strong partnership.
As part of our ongoing strategy to expand our addressable market and to deliver additional value to our client over the past few quarters. We've discussed some of the solutions, we were developing to help our clients better serve their customers increased productivity and comply with regulatory requirements.
For origination clients, we've launched new solutions, such as expedite close Ava regulatory system and a IP the actionable intelligence platform.
For a servicing clients, we've delivered powerful solutions, such as servicing digital and our enhanced loss mitigation solution and we continue to add actionable servicing analytics to they IP.
These offerings have clearly resonated with the market.
We've been very pleased with the positive response from our clients and the resulting demand.
Most recently, we've seen a significant interest in and adoption of our expedite E close and Esign solutions as well as our loss mitigation solution since the beginning of the pandemic.
Speaking of innovation next I'd like to discuss our announcement regarding our plans to acquire optimal blue.
We're incredibly excited about this acquisition as it joints to industry leaders, who together will deliver more industry, leading innovative and integrated solution that will transform the industry.
This acquisition further positions us as a leader in the originations and secondary market space and it provides significant potential for cross sell opportunities to our combined client base all of which support our long term strategy.
The acquisition broadens, our product pricing and eligibility engine client base by adding optimal blues network of nearly 1000 originators 185 investors and more than 3500 industry participants in total.
We also see a great deal of opportunity with optimal blues, Reggie trader online loan trading platform, which connects investors to a large base of sellers.
By adding a comprehensive data assets and making minimal investments to enhance the trading platform, we will be able to offer this solution to our servicing clients to facilitate the buying and selling of new and seasoned loans as well as MSR.
We will then be able to easily transfer those loans between clients, which will further streamline this process for our clients.
Optimal Blue also has origination centric data and analytics that will enhance our existing data assets.
Specifically because of their expansive network of providers and a robust technology solutions optimal blue is able to provide accurate granular and real time insights into pricing data competitive positioning and industry trends.
This data enables lenders to benchmark their products and services against others in the market.
Validate their strategies and maximize the revenue.
We're extremely excited about our ability to integrate this data into our comprehensive offerings to deliver even greater more timely and actionable insights to our clients.
We look forward to sharing our progress as we integrate and deliver these solutions to the market.
Lastly, I'd like to give a brief update on our investment and Dun <unk> Bradstreet.
As I said, when we made the investment in Dnbi, our baseline assumption was that we would generate a strong financial return on our investment for the benefit of Black Knight shareholders.
We were confident the company would perform well and meet the aggressive financial and operational goals that were set at the time to company went private.
And in fact Dnbi met those gold ahead of schedule.
During the IPO investors recognize the transformation that has taken place and also the significant opportunities that lie ahead.
The result was a significantly oversubscribed order book that created the opportunity to increase the size of the offering and increase the price above the high end of the original range.
For Black Knight the outcome is an investment that is worth about $1.4 billion.
In closing as we look back on the first half of the year and prepare for the many opportunities ahead. It is clear that the core fundamentals of our business remains strong and we continue to execute on our strategy to drive revenue growth by adding new clients expanding relationships with existing clients delivering innovative solutions effort.
Assuming strategic acquisitions.
Few businesses have the dynamic growth and margin profile that black Knight and optimal blue can deliver we're excited about the opportunities. This acquisition will give us and how together we will continue to transform the industry.
Thank you for your time today now I'd like to turn the call over to occur for our financial update.
Thank you Anthony and good morning, everyone. Let me take the next few minutes to discuss our second quarter results are updated outlook for the year before we open it up for Q1 <unk>.
At a high level the second quarter came in as we expected with a couple of exceptions.
Origination volumes came in stronger than planned and expenses came in lower due to favorable medical costs as a result employees and their families opting to win that hospital and Doctor visits amid the covert 19 pandemic and other favorable experiences overall it was another quarter that demonstrated resilience visibility and predictability of our business.
With that said I'll take you through the details and our outlook.
Turning to slide three I'll walk through our GAAP results.
On a GAAP basis second quarter revenues were $293 million, a decline of 1% compared to prior year quarter earnings before equity in losses of unconsolidated affiliates were $65 million an increase of 44%.
Net earnings were $39 million, an increase of 20% and diluted earnings per share was 26 cents an increase of 18%.
The effect of our indirect investment and Dnbi was a reduction of net earnings of $31 million or 21 cents per diluted share.
The Dnbi results reflect among other things the incremental amortization related to the application of purchase accounting as well as other non operating charges.
Net earnings margin was 13.3% an increase of 220 basis points compared to the prior year quarter.
For the first half of the year revenues were $584 million, an increase of 1% compared to the prior year period.
Earnings before equity in losses of unconsolidated affiliates were $110 million an increase of 30%.
Net earnings were $89 million, an increase of 52% and diluted earnings per share with 60 cents an increase of 54%.
Affected the Dnbi investment in the first half was a reduction in net earnings of $25 million or 17 cents per diluted share.
Net earnings margin was 15.3% an increase of 520 basis points compared to the prior year period.
Net earnings for the quarter and first half 2020 include a onetime gain of $18.5 million pretax $14 million after tax or nine cents per diluted share relates the favorable resolution of a legacy lender processing services legal matter that is included in other income and expense.
Turning to slide four I'll now discuss our adjusted results for the second quarter and first half.
Second quarter, adjusted revenues were $293 million, a decrease of 0.6% compared to prior year quarter.
Adjusted EBITDA was $147 million a decrease of 0.4%.
Adjusted EBITDA margin was 50.2% an increase of 10 basis points.
Adjusted net earnings were $78 million increase of 7%, reflecting lower interest expense and a lower tax right.
Adjusted earnings per share was 52 cents an increase of 6%.
For the first half 2020, adjusted revenues were $584 million increase of 1% compared to the prior year period, adjusted EBITDA was $287 million an increase of 1%.
Adjusted EBITDA margin was 49.2% decrease of 10 basis points.
Adjusted net earnings were $148 million, an increase of 6% and adjusted earnings per share was 99 cents an increase of 5%.
I'll mention for clarity that the onetime gain that I discussed earlier is not included in the adjusted results for the second quarter and first half 2020.
Turning now to slide five I'll discuss our software solutions segment results.
Second quarter revenues for the software solutions segment decreased 4% to $245 million, our servicing software solutions revenue declined 12.5% as a result of the previously discussed headwinds, including the effective the foreclosure moratorium.
We continue to be pleased with the underlying performance in our servicing software business and the outlook for grow as we look beyond the anomalous headwinds.
In origination software solutions revenues increased 36% driven by new clients higher refinance origination volumes and revenue from an acquired business.
Second quarter, EBITDA decreased 5% to $146 million and EBITDA margin was 59.6% decrease of 70 basis points due to the revenue decline and unfavorable mix.
For the first half revenues in the softer solutions segment declined 2% to $490 million EBITDA decreased 3% to $286 million, while EBITDA margin decreased 70 basis points to 58.3%.
Turning to slide six second quarter revenues for the data and analytics segment increased 21% to $48 million.
Driven primarily by strong sales execution, hi, origination volumes and revenue from an acquired business.
EBITDA increased 71% to $16 million EBITDA margin was 33.4% increase of 970 basis points from the prior year period.
First half revenues increased 19% to $94 million EBITDA increased 59% to $31 million or EBITDA margin was 32.6% an increase of 830 basis points.
Adjusted EBITDA for the corporate segment in the second quarter and the first half was effectively flat compared the prior year periods.
Turning now to slide seven I'll walk through our capital structure at the end of June we had cash and cash equivalents of $228 million total debt principle as of June Thirtyth was $1 billion $204 million and we had revolver remaining revolver capacity of $750 million.
Our leverage ratio was 2.1 times on a gross basis and 1.7 times on that basis.
Before I walk through our outlook for 2020 I'll go through the details of our investment in tonnage and Dnbi shares after their IPO.
Turning now to slide eight following the IPO, we own 54.8 million shares the market value. This investment was $1.413 billion based on the average closing price in July of $25.76. Our total investment is $493 million, including the $100 million from the private placement in connection with the IPO.
So that puts our pretax cash gain at $920 million, our after tax gain at $688 million and the after tax value of our Dnbi investment at $1.180 billion.
Turning to slide nine I'll discuss our outlook for 2020, it's important to note that the outlook. We are providing does not include the effect of the optimal Blue acquisition, we will update our outlook. After we close on the transaction.
Okay now for the outlook.
Revenues and adjusted revenues are expected in the range of $1.170 billion to $1.184 billion.
Adjusted EBITDA is expected to be in the range of $572 million to $583 million.
And adjusted earnings per share is expected to be in the range of $1.94 cents to $1.99 cents.
Additional modeling details underlying our outlook are as follows.
We expect interest expense of approximately $50 million to $52 million depreciation and amortization expense of $137 million to $140 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting.
In adjusted effective tax rate approximately 23% in the third and fourth quarters, excluding potential discrete tax benefits.
And finally, our third quarter in fourth quarter weighted average shares outstanding approximately 156 million and full year weighted average shares outstanding approximately 153 million.
Although we do not provide quarterly guidance I'll provide you with some color as to how we expect to progress through the remainder of the year.
Regarding revenue, we expect third quarter revenues to increase sequentially from the second quarter due to a large implementation and servicing software and fourth quarter revenues are expected to be flat to the third quarter.
And finally, we expect operating expenses to grow sequentially from the second quarter third quarter with another step up in the fourth quarter due to seasonality and other investments.
With that operator, please open the line for Q and I.
Thank you we will now be conducting a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad, a confirmation tomo indicate your line is another question Q.
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In moment, please when we pull for questions.
Thank you. Our first question comes from the line of Kinston Wong with Steve with JP Morgan. Please proceed with your question.
Thanks, so much and congrats on the Dnbi IPO now a lot of work on that for sure.
So let me ask them optimal blue if that's okay, I know you're not updating guidance here, but can you give us a little bit of.
Help on how could how we might think about revenue synergies as well as integration costs for for bringing the JV on once it closes.
Sure good morning tension. Thank you.
No. We're obviously very excited with its optimal blue we think that there are a lot of opportunities there.
In addition to.
The the reasons that we're excited to acquire them.
Yes, they've got a.
I really sticky network effect in the marketplace, where they bring in a mortgage originators and investors together and.
And we see a lot of cross sell opportunity in terms of us selling some of our capabilities into their client base and for them to.
South some of those capabilities to our client base. So as we look at it from that perspective, we think there.
As you can imagine with any acquisition you always find the obvious and then there is always hidden gems, we always look for and we see some of those as well such as the trading platform.
That they have we've been talking about that for a while adding.
Our loans seasoned loans on top of that as well as all of our data and our analytics that have tremendous inside.
To those loans and facilitating trading so we see a lot of areas of revenue synergy from that perspective and from synergy perspective Kirk.
Sure sure to engine I I've from an integration cost perspective.
I would say is I think there'll be relatively modest I mean, if you think about what the what type of cost would fall in that bucket, it's going to be where there is functional overlaps where there where we're doing product integration. So you can imagine that they're going to integrate the optimal blue PPD tightly with with that and power, which I think will create tremendous opportunity.
For.
For revenue synergies as well, but I think there will be relatively modest and just to give you a sense a scale as well regarding the business and kind of a preview into what guidance could look like you know the business. This year, we'll do about 120 million or revenue in about 60 million of EBITDA. So very attractive business from a scale perspective from a growth perspective year year to date, it's growing.
35% in a very high subscription business, so it's almost 80% subscription.
So it's really not a transactional business that will have the cyclicality that some origination businesses could half was very consistent with our business model.
And very attractive margins in that 50% area. So it's that rare combination of a business that is long term accretive to our growth rate, it's accretive to our margins where when we when we are able to achieve a cost synergies, which again. This is a growth play not a cost synergy play, but but we we have proven to be an and company in the path.
Asked where we can we can grow businesses as well as make them more efficient and those are things that we that we find very attractive ought to about adding optimal blue to the family.
That's great color. Thanks for sharing all that maybe on my follow up I just ask.
You mentioned that new sales TCV was up double digits.
We're going to weird market, obviously with.
With rates, so low and people work from home and.
Im curious how the pipeline is shaping up I would imagine a lot of the lenders the banks are.
Struggling with demand and struggling with the tech demands on top of that work from home remotely all that good stuff. So can we say since last quarter that that the pipeline is gotten larger and demand is gone up for outsourcing.
Yes without question to engine.
We've seen.
No not just double digit growth year over year and strong performance in that regard but.
Early I'd say Q3 results and forward pipeline that we see gives us real confident that 2020 is going to another strong sales years for us.
We're excited with the momentum that we have and.
Again, I'm very grateful for my colleagues.
And the company pushing hard.
Through.
This cobot 19 pandemic working from home, but really as you look at all the results in this quarter, there's nothing at all slowing down if anything we're getting faster and faster or what we're doing and.
Just excited really that.
Our passion for our clients our focus on innovation, we're reaping the benefits of it right now the solutions that we are driving to in this.
All digital.
Mortgage world that we've been talked many times on these calls the pandemic has accelerated the need for them. So we're just in a great spot right now.
Great to hear grazier. Thank you. Thank you. Thank you to engine.
Our next question comes from the line of John Campbell with Stephens. Please proceed with your question.
Hey, guys good morning.
Hey, John.
Hey, congrats on the great quarter. The recent wins and then getting bank of America line. That's that's good stuff and then.
It's such an optimal bluford shifts that kind of follow up question on that I mean, obviously exciting built for you guys that.
It seems like it was a pretty sought after asset I mean, I think I suppose there I think Ellie Mae was there kind of both aggressively chasing that they don't when the bed and then the pair up so I just was curious about maybe what they were looking for on their side and then any kind of high level thoughts on what Ellie Mae might look like now with ice until.
Well I think.
In terms of what they may be looking forward the optimal blue I obviously.
Ask it asked them into that question, but I think there's some things which would be obvious that they're looking for because it's more just fact and Thats Kirk said.
Looking at the stickiness of the solution set they haven't.
The complexity in terms of replicating that network effect, bringing investors and lenders together in the marketplace is that it's one of those businesses, which isn't it's just not technology, its technology and years of selling and implementing in creating.
But also the revenue growth that they're seeing from at the margins at there.
Demonstrating its it's hard for Black my perspective, as we look at companies to buy the just aren't many that are growing faster than us and have margins that look like ours. It's something that is true really excited about it and so I'm sure those for some of the elements there as well and.
And being in that marketplace, the ability to drive more innovation from it.
I have to believe was.
At the heart of what they're looking for and.
From an only perspective, I'd say going forward with the ice acquisition.
I'd I'd say ice will.
Integrate the simple file acquisition that they made.
Ladies as they had said publicly as well as Mers and I think.
Those are good moves for them to make you know from US we've got our game plan that we have down for a number of years here in terms of really building a digital front to back capability in this space.
And.
And Thats really what we've been doing like last year at our conference I think updated you.
We demonstrated working with.
Yes.
Full digital journey, working consumer working with a real turn to find a home engaging a lender to originate the loan than them working with their servicer on the loan all the way to capital markets and we've got a very deep understanding of our clients and of this industry and so the level of functionality and integration that we're pursuing.
Across the full blown lifecycle is very comprehensive and.
So.
The path that we've been on in terms of executing against our game plan is.
It's resonating it's working for us and we're pleased to see the ice and Alley combination.
As a validation of what we are doing.
Yes, that's very helpful. Thank you Anthony Kurt and follow up for you.
Hey, just kind of questions, but I have to have to shoot the shot you guys, but the twoq you put up north of 50% margins. The high end of your guidance for kind of whats implied in the back half I think is roughly 49 or so percent margins I mean, you've got bank of America coming on I think that probably offsets depending Mac loss.
As long as originations not kind of falling off a cliff what explains some of the stuff done a margin.
Sure. There's a couple of things in the second quarter and I mentioned this in my remarks that we had a lower than expected medical costs in the first half and and I think a good chunk of that part of its just favorable experience, which is terrific but.
But that can be fleeting and then the second part is that our employees in the families where we're not we're not going to doctors and hospitals for for non essential things because of Cove. It and so that's not something we're planning for in the second half and so there's the possibility we could have similar experience in the second half, but that's not what we're planning for because it really.
He was just so far below trend and then I would say there certainly are investments that come with bringing on a client as large as as bank of America onto the platform and then fourth quarter is always a little unusual because there's less cap and deferred work that goes on the balance sheet because of holidays and there's just.
Theres and Theres a expense uptick on the net basis in that quarter. So that being said John you've noticed for very long time, we will we will certainly push the business as hard as we can from a from a margin perspective and discipline around around spending but we also are using this opportunity to continue to invest in the business.
As for the long term, so that margins arent, peaking today and then and then we bear the brunt of it in the future. So we'll continue to push it and ER and but those are a couple of things that we're planning for in the second half.
Okay very helpful. Thank you Kirk.
Our next question comes your line of Andrew Jeffrey with Suntrust Robinson Humphrey. Please proceed with your question.
Thank you good morning, the new true sure actually yeah, that's right Andrew [laughter] exciting times.
One of the things I notice.
Second quarter ROE now.
Very strong DNA momentum I wonder if you could elaborate a little bit on what you're seeing in that business really three quarters around with some acceleration in the first half how much of that it can you share shifted.
Versus new solutions, and maybe what are some of those solutions that are allowing you to accelerate the growth in that business.
Okay.
Andrew I would unpack that growth a little bit first of all we're obviously very pleased with 21% growth and another quarter of solidly above 30%. The sales execution continues to be good in this particular quarter. It was.
Really from a sales perspective, it was in our public records business. So data licensing was was very strong in the quarter and then if you look at that 21% we had our collateral analytics acquisition for full quarter and frankly is performing above our expectations are already which is consistent with the last three acquisitions that we've done.
We did benefit from volumes in the quarter. So this is my remarks, I talked about volumes being better than we expected.
That's certainly benefited the data and analytics business in this quarter as well as the origination business, but a little bit more on the data and analytic side.
And then the kind of the underlying third leg of that would be the sales execution and as I talked about that was in the public records business, where we saw that in this particular quarter. So we're still growing in that kind of.
Back out the other components the underlying sales execution is driving mid single digit growth, which is frankly, where we have been where we would be on a sustained basis based on our expectations. So we're pleased with our performance. The team continues to have a great job.
But thats up Thats, where we saw in this particular quarter.
Okay. That's encouraging thank you and then just broadly.
Especially given optimal and this accelerating shift digitization.
Like Black Knight is is approaching a point, where can really begin to price to value and more explicitly quantify shavings for customers and therefore, it maybe a little bit of a pricing tailwind over the next few years.
Well I think.
Those points are great ones, Andrew in terms of where the industry shifting and it's certainly how were.
Measuring everything that we do and it's part of the I'd say the sales process that we have so we're very much focused on value. If we're innovating. It has to drive revenue for our clients. It has to drive margin expansion or it has to drive compliance and we're very focused and disciplined on.
What we're doing and how it lines up to one of those goals that are clients need and it's part of the process that we will flow through so if you look at from an MSP to implement that part of the sales process. We're doing a very detailed operational review again, we're not looking to.
To slide in slide out with a quick sale, we actually slow it down and go into detail with it in terms of showing what the sales are starting with the the results will be from the operational review and we do that with really all of our solutions.
Mentioned, a few calls back with Eva for example that having the four skills say $437 part of the close above the cost sorry for origination.
Of alone and so we are very focused on that as part of our natural sales motions and we're going to continue to do that Andrew X. I do feel that.
More and more we're getting.
You know a lot of great momentum here in the space lots of ways for us to help our clients and it's one of things that just really has all of US here really energized and excited Andrew one thing I would add would be all the capabilities that we've added over the years, both internal development as well as through acquisition and our origination business, we've gone from being at all the west.
Provider with the exchange and with the it with that network and that was the core and we keep adding capabilities and so when we price it on a per loan basis, the price per loan that we're charging today versus where we were before because of all the additional capabilities is significantly higher we've talked about more than doubling its probably probably conservative the addressable market with all these other sub.
Lesions, we've been able to add and so the price devalue certainly think there's more room to go as Anthony just said, but I would also say, we're capturing a lot of value as we add additional capabilities.
Thank you very much.
Thanks, Andrew Thanks enter.
Our next question goes relying a Ryan tomasello with KBW. Please proceed with your question.
Good morning, everyone. Thanks for having me on the call. This morning I'm.
Also I wanted to ask a bit about optimal blue.
What type of organic growth rate do you think is achievable in that business overstate. The next three to five years relative to that 35% I believe you mentioned.
Do you think that that level of growth is sustainable and.
Maybe some color around which products of the optimal blue part from are really driving that.
And then on the cross sell side, perhaps you can help frame the synergy opportunity there in terms of the customer overlap and if you think that.
Opportunity might be accretive to that 35% growth rate, they're currently achieving thanks.
Sure Ryan I'd say, you know looking forward, what we've modeled was a 20% growth rate over the next year on number of years.
In the business and.
And the products that we see contributing to that.
Is there a product and pricing engine.
As a key component and Thats building onto the momentum with it.
We see opportunities.
As well with their data and analytics solutions that would add to it.
I'd like said some of the hidden jewels that were pursuing right now such as the the trading platform.
From a a cross sell perspective, we are excited about that it's what we do obviously right as.
[music].
It's the first place that we look it's.
It's a lowest hanging fruit in terms of us.
Helping our clients by integrating then the next piece of the adjacent solution, which will help them.
The realize the benefits sooner and from US. It's also the lowest hanging fruit in terms of rent revenue generation and so we're very focused obviously on the cross selling capabilities. What we're pleased with with optimal blue was.
A number of things in terms of the product they've got a very strong management team. They run a great business and we're really pleased with.
The state.
I should say their status in the industry, they're highly thought of and that's always critical as you want to cross sell.
How are they treating their clients are they taking care of and are they doing the right things by them or they are continuing to lead them.
Those are things that we're doing at Black Knight and we believe those lead to sales lead to trusted relationships and they're doing the same so that gives us confidence that we will continue to be able to cross sell into their base like we'll be able to sell their capabilities into our client base.
A couple of things I'd add Ryan would be from an overlap perspective, we have 47 in power clients and none of them use optimal blues product pricing eligibility engine. So that gives you that thats one area to cross sell and they have a thousand lenders on their pp.
That we can certainly go with whether it's our loan origination system or our other ancillary solutions in origination. We can go to that that go to that base and so it's really that theres a theres a lot of white space there for us to for us to try to capitalize on and I think that just that gives you a little context for it for the opportunity.
Great Thats Super helpful. And then in terms of the structure of the deal what drove the decision to syndicate the minority interests.
Hi, and THL and Kirk maybe you can give us.
Where are you see pro forma leverage shaking out after the deal closes and just broadly your thoughts on M&A. After I'm, assuming this deal gets done and how you're balancing that with with leverage and integration of this acquisition.
Sure.
As you've seen over the past.
Frankly since we've been published last five years, we look at things from every angle, we look at things at for all of our stakeholders as well and so as we're looking at this deal and where the price ended up frankly, the syndicating a portion of it with canine THL, who our partners that we have now and worked with for a very very long time partners that we know and trust.
And can work very well with.
It really was balancing financial risk. So it really was looking at leverage and where we thought that each of our stakeholders, whether they be our lenders the equity markets. The rating agencies, our clients the way everybody would look at it we wanted to keep our leverage under four times and so our leverage will be high threes when we.
At closing as an estimate and we can de lever very quickly both through.
Through EBITDA growth as well as through actually paying down debt and so we can do it on a pretty on very accelerated basis and get back down to our target or below that target being three times and so it really was a financial risk play.
And frankly, the only reason why we were willing to do it was because we were able to bring in partners that that as I said before have no in a long time are very very strong operators and so we're actually really really pleased to have kenai and THL alongside us for this transaction.
Great. Thanks for taking the questions.
Thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Ashish Sabadra with Deutsche Bank. Please proceed with your question.
Thanks for taking my question Congrats on a good Qualcomm Dnbi IPO as well that's a document to acquisition.
Thank you so just.
Okay, and just wanted to digital or mortgages. Thanks, Anthony for providing color on the the clothes and loss mitigation I was wondering as you think about a and too and I was wondering if you can comment on the digital deal as as well and the automotive production at east to enhance the digital closing.
Did you guys enough mortgage origination thanks.
Sure.
We think that there is in there continue to be more more capabilities that we can bring to market to help streamline the process and to your question specifically on the digital point of sale I'll just give you some color on.
On what optimal blue can bring to that.
To the solutions that so now.
Imagine.
You are.
Applying for loan there for point of sale with often blue having access to the product and pricing.
Capabilities, we can pull forward what your rate is so now as you're applying for for a mortgage being able to present you with what's your exact rate is that we're pulling straight from that date that database and at the same time from our Ernst acquisition pulling the exact fees from what you'll pay taxi close on the loan so.
Right upfront before you start applying you know what your total cost would be and what the rate would be it's powerful and as we keep looking at ways to create a more compelling value proposition and to drive momentum in the space. This is of the type of capability that we're really excited about that we think could truly differentiate.
That's helpful color.
Maybe just a quick clarification on delineation business I was wondering if you can help parse how much of the growth came from the refinancing volume.
Position and the growth and underlying business. Thanks.
Sure the the benefit of Rifai was about a million dollars and origination.
And it was up and the acquisition added a couple of points of growth to the total company.
For the for the quarter.
That's very helpful.
Thats once again, thanks, Thank you fish.
Our next question comes from the line of Jake Williams with Wells Fargo. Please proceed with your question.
Good morning, everyone.
Good morning.
Quick question on the step up and expenses related to the bank of America going lives can we expect those to taper off some oral will not be kind of a steady run rate just sled maintaining that relationship.
That will be another support costs and so thats an ongoing cost as we bring a client. That's we always talk about there being very high incremental margins when we bring a client Don but they certainly aren't incident and so there's an element of of computing koesters amount element that support cost that goes with the client, particularly when we're talking about.
Client that's the single largest conversion of a servicing clients in the last decade. So it's we're certainly thrilled to have them on but but that as we think about the cost structure. There certainly has a cost to support.
Got it very helpful. Thank you.
Thanks tick.
Our next question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question.
Thanks, Good morning, first any update on how meaningful some the new products again to your financial growth. So far this year between servicing digitally IP Eva any others that are worth calling out and had these really started to move the revenue needle.
So far this year any additionally, I guess when within Eva how are you thinking about expanding capabilities there to drive origination costs down even more.
Sure I'll start Steven.
First with the contribution from from innovation. So we talked about on an ongoing basis that driving 1% to 2% of revenue growth per year kind of an aggregate for recently innovative solutions.
I would say from the first half we aren't yet to that 1% nor do we expect to I think that that was considered more of a long term.
Hi, post the 1% to 2% so we're probably between half a point and a point of our growth. This quarter was from was from recently innovated solutions.
Yes, the one thing I'd add to that as well is it a lot of these innovations are helping drive other products. So last year with MSP, we signed nine new clients. It was the best sales here I think since 2013 Lucy.
And and so far exit this year, we've signed four of them. So theres also this inherent value that.
This innovation brings as we're selling all of our platform products as well, but I just didn't want to be lost in this.
The second part your question Steven on Ava, we're continuing to build out the skills. So that we can continue to help lower the cost of origination for our client and.
Again, the team Scott Great focus on this great momentum and great partnership with many of our clients working with us feeding us more and more of their loan documents for able to continue to learn more more different forms across different parts of the country, which obviously once at learns that helps.
The automation process.
Got it that helps and then I guess on optimal blue wanted to ask some more about how quickly you can start to realize some of the cross selling opportunities. After the close sounds like there could be some integration needed on the product database side, but maybe not overly burdensome. So would you be able to hit the ground running on seem to cross line and go.
The market efforts pretty quickly after it closes.
Yes, no we definitely will hit the ground running like we always do with acquisitions and.
Hey, what I have couple appliance reach out to me that.
So they're going to come on once they heard of us acquiring optimal blue and obviously, we've got very trusted relationships with our clients.
And so I expect that will certainly hit the ground running if not perspective from an integration perspective, it will take us probably good parts. The rest of this year to really integrated.
To the level.
That our clients expect of us and very detailed comprehensive and.
But we'll certainly hit the ground running.
Once we close on the sale side.
Great. Thank you.
Thanks Steven.
Our next question comes from the line of Kevin Kaz married with Zelman. Please proceed with your question.
Hey, guys on optimal Blue you mentioned that give you the capability for borrowers to know the exact rate and fees for potential mortgage.
So what are the pieces missing that could allow black knight to enable your MSP, an empire clients ticket the timing cost of processing or say, our revised down further where perhaps the end goal of being something along the timeline of an auto loan where it's something like ours and instead of weeks, what one of the bigger pieces that are missing there.
Well.
A lot of parts in the process node from an origination perspective, Kevin.
Is on the staring compare so still having documents to prove what you. What you said in your application is true that takes a long part of the process.
And certainly a lot of the work that we're doing with Teva is to help us in that regard.
Streamline that automate that so it's here to apply for a mortgage from your mobile device and you take pictures of these documents Eva recognizing them on the fly being able to extract data on the fly and really streamlining that process getting back to you. If one of the forms you sent was an income.
Correct form for example, a few sent to bank statements two of the same bank statements versus sequential month. So.
A lot of tendon in that process, that's where there's typically a lot of a breakdown, it's getting back to consumers on loans.
Questions on the on the document I should say and so being able to really do all that right up front. We think it's probably one of the biggest savings that you'll find in streamlining and other mortgage process. So.
We've got strong E close capabilities right now we continue to.
Bill that we.
Our launching a guided close capability with fidelity national financial the industry's largest.
Settlement agent and.
And so we think that part obviously will help there's a lot of parts that can help but the biggest is really from a document perspective, the ability to get a quickly recognize it right away extract the data and pop into your workflow, which again, we always talk about ancillary systems I want to bring everyone.
Back to the actual loan origination system itself that we have within power is world class in terms of how it's so automated and light toll processing and just really drives out exceptions, we kind of take that for granted but we shouldn't I mean as you get into the details.
Thats, where the differentiation really occurs and that's what we see being able to help streamline the process as well.
Okay. Thank you that's very helpful. And then one quick one on the forward guidance or given the timing of bank of America.
Hey, all else equal one would expect an uptick in the fourth quarter because your they came on mid quarter.
In the third quarter so I.
I guess, what's offsetting that in the fourth quarter I think you mentioned a downtick in services revenue is there something else there as well and is that correct.
Thats exactly right, Kevin fourth quarter always has less professional services, just because of holidays and and the like we're planning it as if it's a typical year, we're not we're not adjusting anything because anyway because of co vid.
Or that any behavior would be differently. So we're assuming that that there will be.
Vacations and holidays, and the like and shutdowns such that says that professional services will be lower in Q4 versus Q3.
Okay, great. Thank you it's all have.
Thanks, Jeff.
The final reminder, if he would like to ask a question press star one on your telephone keypad. One moment. Please while we report for any additional questions.
Thank you. It appears we have no further questions at this time, Mr. Before I would now like to turn the floor back over to you for closing comments wonderful. Thank you.
Despite this unprecedented environment, our new sales client renewals implementations and ability to deliver innovative solutions has not wavered, which further demonstrates our talented team members ability to ride to any challenge I'd like to thank our clients for the strong partnerships and my Black Knight colleagues for their exceptional efforts. Thank you for joining us on the call today.
Interest in our Great company.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.