Q3 2020 Black Knight Inc Earnings Call
Greetings and welcome to the Black Knight third quarter 2020 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Steve <unk> Investor Relations with Black Knight. Thank you you may begin.
Thanks, Good morning, everyone and thank you for joining us for the Black Knight third quarter 2020 earnings Conference call. Joining me today are Chief Executive Officer, Anthony to bore and Chief Financial Officer Kirk Larsen. Our results were released this morning, and the press release and supplemental slide presentation have been posted to our website.
This conference call will include statements related to the expected future results of our company are therefore forward looking statements. Our 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, and other SEC filings.
Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliations between non-GAAP financial information to the GAAP financial information.
Right in the press release and supplemental slide presentation.
This conference call will be available for replay via webcast through Black Knights Investor Relations website at Investor that Black Knight Inc. Dot com.
Now I'll turn over the call to Anthony.
Thank you Steve Good morning, everyone and thank you for joining us for our third quarter earnings call. This was a strong quarter for black Knight during which we continue to execute against our strategic growth initiatives.
Putting adding new clients to our core platforms.
Selling delivering innovative solutions and making strategic acquisitions.
Our sales have been particularly strong so far this year. Despite the challenges from this unprecedented environment.
This illustrates a forward thinking lenders and servicers are seeing the value of our innovations the integration of one black Knight and our sense of urgency and all that we do and they want to reap the benefits that are valuable solutions offer.
First let me provide an update on each of our businesses beginning with our servicing software business.
In the third quarter, we signed three new clients time SP, including caliber the top 25, nonbank servicer, which I mentioned on the last call and to mid tier Servicers.
Year to date, we've signed five new MSP clients, representing over 750000 loans.
We also renewed our MSP contract with Dover meal mortgage a top 10 servicer.
In our origination software business. We've continued the momentum selling expedite Ava piece services and exchange, which are solutions that can be used with any loan origination system.
At the end of last year, we reorganized the team that's healthy solutions and the results have been remarkable as we've seen sales contract value more than double.
We also had continued success selling in power to mid and top tier lenders.
In fact, we signed two new lenders to our empower platform in the third quarter. In addition to signing the truest long term renewal that includes adding to BB and tea production onto Black Knight's systems, which we previously discussed.
Next I'd like to talk about our data and analytics business last.
Last year, we launched the rapid analytics platform or route we signed twice as many clients to wrap in the third quarter than we have since launching the product last year, which speaks to the value to our clients see in the solution to help them make informed business decisions and develop effective and important strategies.
In addition to being a powerful platform wrap tries more bundled data sales and as a differentiator when it comes to customer renewals.
At the onset of the pandemic, we launched the Mcdonald's Flash dataset to give clients deeper daily insights into the impacts of the krona virus on servicing performance.
And the third quarter alone we executed eight deals that included both Mcdonald's Flash data and Rob the company that will be leveraging these unique solutions.
Include for the top investment banks and the Federal Reserve Bank.
I frequently share with our clients our colleagues and with you our intense focus on innovation integration and urgency. It is this commitment that has enabled us to launch our next generation customer service solution, which helps MSP clients better support their customers by displaying all the information they need to respond to a call is questioned and.
Single location. So they can respond quickly efficiently and accurately we've signed for clients to the solution since launching it last month.
We also continue to add capabilities to our digital origination suite.
Our digital point of sale solution, which is now generally available simplifies the loan application process by leveraging AI throughout the process and enables consumers to complete the loan application on their schedule from any device.
Complementing this solution. We have also delivered a digital solution for loan officers, which gives them a single mobile responsive platform with all the tools they need to serve their customers anytime anywhere.
Next I'm going to talk about some enhancements we've made to our expedite close solution, which uses advanced intelligence to select the best most permissible way to digitally close alone for each jurisdiction.
And the third quarter, we acquired dock verify and integrated this leading software and to expedite close to support in order Ization and remote online normalization.
Another innovation in the digital mortgage lifecycle journey is our new guided close solution that guides borrowers on a document by document basis through the closing package.
Together these solutions are transforming clothing into a more efficient and contact list process.
As the trend towards a fully digital mortgage process accelerates, particularly in the socially distance environment. These solutions further enhance our clients' ability to serve their customers where they are.
All the solutions I, just mentioned are integrated and further our digital footprint where.
Where are the only provider in the industry that offers comprehensive platforms across the loan lifecycle as well as digital solutions that can be leveraged at any point in the process to help our clients be more efficient and better serve their customers, which leads to increased customer satisfaction and retention.
Finally, we continue gaining traction with our innovative servicing digital and loss mitigation solutions in fact.
We now have 43% of the loans on MSP signed for servicing digital and 34% for loss mitigation.
Next I'd like to give an update on our acquisition of optimal blue which closed in September.
Combining the optimal blue encompass analytics teams and offerings, we now have the leading product pricing and eligibility engine as well as the premier hedging capability in the industry.
The combined team has a great deal of experience in both mortgage and technology that will help drive continued innovations for our company.
We've already started to identify ways, we can aggregate our strong data assets to deliver even more valuable analytics and insights to our clients.
The power of this combined set of solution is resonating with clients of both companies.
I look forward to providing you with additional updates on this acquisition on future calls.
In closing, it's 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 and pursuing strategic acquisitions.
I'm excited about the momentum we have built and how we'll continue to transform the industry. Thank.
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 updated outlook for the year to summarize the underlying performance in the third quarter was very strong. The results came in as we expected with the exception of origination volumes that came in higher it was another quarter that demonstrated the resilience visibility and predictability of our business.
With that said I will take you through the details and our outlook turning.
Turning to slide three which shows our GAAP results.
On a GAAP basis third quarter revenues were $313 million, an increase of 4.5% compared to the prior year quarter net earnings attributable to Black Knight were $128 million an increase of 243%.
Noted earnings per share was 82 cents, an increase of 228% the effect of our investment in Dun <unk> Bradstreet was an increase in net earnings attributable to black Knight of $87 million or 55 cents per diluted share primarily related to an $88 million noncash gain as a result of their initial public offering and concurrent.
Private placement.
Net earnings margin was 36.7% compared to 12.5%.
Turning to slide four I'll now discuss our adjusted results for the third quarter third.
Third quarter adjusted revenues were $313 million, an increase of 4.5% compared to the prior year quarter. Adjusted EBITDA was $155 million an increase of 3% adjusted.
Adjusted EBITDA margin was 49.5% compared to 50.1%.
Adjusted net earnings were $81 million, an increase of 7% and adjusted earnings per share was 52 cents an increase of 2%.
Turning now to slide five I'll discuss our software solutions segment results third.
Third quarter revenue for the softer solutions segment increased 1% to $260 million, our servicing software solutions revenue declined 4% as a result of the previously discussed headwinds, including the effect of the foreclosure moratorium.
Year over year performance improved from the second quarter as a result of the bank of America conversion and the anniversary of certain other previously discussed anomalous headwinds from 2019.
We continue to be pleased with the underlying performance in our servicing software business and the outlook for growth as we look forward.
In origination software solutions revenues increased 20% driven by new clients high origination volumes and revenue from acquisitions.
Optimal blue contribute five and a half million dollars of revenue in the third quarter.
Third quarter, EBITDA decreased 1% to $152 million, an EBITDA margin was 58.4% compared to 59.5% due to unfavorable revenue mix.
Turning to slide six third quarter revenue for the data and analytics segment increased 27% to $53 million, primarily driven by strong sales execution higher origination volumes and revenue from an acquired business.
EBITDA increased 74% to $18 million EBITDA margin was 34.5% an increase of 940 basis points from the prior year quarter.
Adjusted EBITDA for the corporate segment was $1 million unfavorable compared to the prior year quarter, driven by higher incentive based compensation.
Turning now to slide seven I'll walk through our debt structure at the end of September we had cash and cash equivalents of $31 million total debt principal was $2.323 billion we.
We had revolver capacity available of $612 million and our leverage ratio was 3.6 times.
Before I walk through our updated outlook for 2020 I'll go through the details of our investment and Dun <unk> Bradstreet shares.
Turning now to slide eight.
54.8 million shares the market value of this investment was $1.407 billion based on the $25 to 66 cents closing price of Dnbi on September Thirtyth, our invested capital is $493 million that puts our unrealized pre tax gain of $915 million Andrea.
Unrealized after tax gain at $683 million and the after tax value of our Dnbi investment at $1.176 billion.
It goes without saying that we have been very pleased with the performance of the Dnbi team and our investment.
Turning to slide nine.
I'll discuss our updated outlook for 2020, which we are raising to reflect the optimal blue acquisition the outperformance in the third quarter and expectations for the fourth quarter.
Revenues and adjusted revenue for the full year are expected to be in the range of $1.229 billion to $1.235 billion. Adjusted EBITDA expect in the range of 603 million to $608 million and adjusted earnings per share is expected to be in the range of $2 to three cents to $2.07.
Additional modeling details underlying our outlook are as follows we expect full year interest expense of approximately $64 million full year, depreciation and amortization expense of $136 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting and adjusted effective tax rate approximately 19% in the fourth quarter.
And 22% for the full year, including certain discrete tax benefits.
And fourth quarter weighted average shares outstanding of $156.5 million and full year weighted average shares outstanding of approximately $153 million.
Thanks again for your time this morning, I'll now turn it over to the operator for today.
At this time, we'll be conducting a question and answer session. If you would like to if you would like to ask a question. Please press star one on your telephone keypad a confirmation Tom will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment. Please while we poll for questions.
Our first question is from John Campbell with Stephens incorporated. Please proceed with your question.
Hi, guys. Congrats on the quarter really good success with innovation efforts and then closing unprofitable. That's great work. Congrats. Thank you. Thanks, John Thanks, much Ah first question, how many loans. If you can just update us how many loans on MSP now and what's the expected.
Kind of loan count once you get through the implementations.
Oh the loans today are 32.7 million versus 3.4 on seconds, which is 36 total.
The market share is 61% on first 26 seconds, and then pro forma to be a little over 62 on first and about 29 on second.
Okay. That's helpful. And then on optimal Blue I think you guys originally kind of frame that up as 100, and I think 120 million growing 30 ish, 35% something like that it looks like you guys might be a little ahead of schedule now. So if you could just maybe provide us an update on kind of the outlook for optimal blue outlook and if you can maybe give us a little bit more color on the contractual versus a transactional mix at this point.
Yes, it's a it's still in that area John It came in frankly as we expected for the two weeks, we had in the third quarter and the forecast for the fourth quarter was in line with expectations are right in that the 120 million area from a.
From a transactional versus subscription, it's about 80% subscription a little bit less.
But it's a very it's a business that is very similar to to most of the black Knight is with that very high subscription content, a little bit of benefit from from volumes, but but not nearly as sensitive as as some other origination software providers in the space. So very high recurring which as we talked about last quarter is something that we really like about the business.
Is that that predictability and consistency in the revenue base and then of course, the high incremental margins.
Okay, and then on the modeling.
I have a little bit of data and analytics revenue, but is it safe to assume that the vast majority that falls into origination for you guys.
At all does Sapolu fully reports into our into our origination software business, we actually with a combination of compass created.
Secondary marketing technologies Division Thats.
Thats, the combination of compass and optimal blue part.
Perfect. Thank you guys.
Our next question is with Andrew Jeffrey Trust Securities. Please proceed with your question.
Hey, good morning, appreciate you taking the call good morning.
Hi.
Optimal blue seems to be.
A terrific fit and obviously very strong future growth drivers Anthony can you talk a little bit about maybe a product roadmap.
And exactly how.
How we might think about the integration of optimal blue solutions, and perhaps new solutions that they grow out of the consolidated entity is that a 21 event, what's the kind of timeframe and the roadmaps there.
Sure.
Well the the first integration Andrew is integrating and power with optimal blue and Thats targeted for Q1.
Often running in terms of.
The projects the selling sharing leads back and forth et cetera on a more broad basis, but on that integration. It's looking Q1 and in terms of a really new possibilities coming from it as Kirk said, we created a new division, our Secretary marketing Technology Division, where we put our compass.
Analytics business together with optimal blue.
Where there could be a lot of great collaboration and.
Specialization in that space.
And we will constantly find new ways to innovate and ideas to come up with in the the one that probably has the most team right now that we're pursuing is a trading platform.
Looking at what optimum Lou had.
Previously, but adding seasoned loans to it from MSP and the analytics and the data that we have on those loans.
As public as soon as one and.
Yeah, I imagine will.
We'll launch some point next year and.
Do what we always do work with our clients beta test learn pivot.
And then come on a GAAP basis.
Okay. That's helpful. Thank you and then I just I wonder if you could just comment on the macro environment.
To the extent that debt rates stay low low in the purchase market is robust as we start to see perhaps some increased foreclosure activity is just kind of the best of all possible worlds looking to next year for Black Knight.
Well.
Like I said the thing that we pride ourselves on is not being affected as much by other.
Impacts on the environment, but certainly as you've seen.
Natural things can occur such as the foreclosure moratorium, which did occur.
And.
And as we see things improving saw the the Pfizer announcement this morning.
And hopefully.
On a related to our call just it's good for all humanity in terms of we work our way out of this pandemic, but.
But.
But certainly rates are low they're looking to stay low.
Thank you.
President elect has talked about tax.
Tax credits to spur on me.
More purchase for low income.
So so we anticipate that continuing we.
Pork, what the foreclosure moratorium does next year, we'll see I mean.
But but we're certainly in a good spot there is theres headwinds and Tailwinds I think that we can go through across all these things.
No.
We are starting to think about them would there be an increase in regulations for example.
As a potential.
A headwind to the industry, it's something that's been classically a tailwind for companies such as ourselves were strong industry leaders of clients turn to.
To to stay within guidelines. So so we'll we'll work through that but but we certainly feel good about where we're positioned we feel good about next year.
Great. Thank you very much.
Hunter.
Okay.
Our next question is with Ashish Sabadra Deutsche Bank. Please proceed with your question.
Hi, Thanks for taking my questions. So first one on the origination suite.
Thank you Doug locate proud of that.
The combination of the digital suite lust.
The optimal legal I know, it's still very early days, but I was just wondering how you how about your client conversations how is the pipeline building up floor.
As you nation suite, obviously, you've had a really great success.
Last few quarters, but how do you think about the momentum going forward. Thanks.
Sure sure we feel great about the momentum going forward by certain.
Certainly feel that the.
We are.
Leaders on the digital channels and prior to the pandemic and Thats, just exaggerated the trends and accelerated them and so the innovations that we're bringing to market really is resonating with our clients and we're seeing it in the conversations that we're having with them and our prospects. So short answer is we feel very good about.
How were positioned there.
That's great and then just quickly on data analytics Kirk if you can give us what the organic growth that was exceeding a mortgage and acquisition and then a follow up there obviously pretty strong momentum that as valley new games.
Can you just talk about how.
How do you think about that.
Are you gaining market share in that business and what's driving that strong momentum you called out the IP platform.
As well as make dash, but just wondering I've been out there.
Products, which are in the pipeline as well.
Any color on those fronts. Thanks.
Sure. So I cant the the first question the quantitative aspect if you if you back.
Backout collateral analytics and effective volumes it was about 6% growth so very consistent and we're actually we're continue to be very pleased with that performance.
As well as the margin performance in our data and analytics business, so very consistent with the last several quarters.
So so very good performance there from a what's driving it it's actually a pretty broad based I mean, we are continuing to focus on on cross selling to existing client base and leveraging those relationships, we're leveraging the sales and the receptivity of the rapid analytics platform, which not only is a weight.
Not only a platform sale, but it's a way to deliver more data and so it's actually a way to deepen those those partnerships as well, but it's really across the board and it's been remarkably consistent over the last four or five quarters, what that performance has been and we think that thats a reasonable expectation as we go forward as well.
Thanks, and congrats on such a solid results. Thank you. Thank you. Thanks.
Our next question is with teen Gen Hall with JP Morgan. Please proceed with your question.
Hi, good morning really.
Everything was very strong everything's up ahead of our expectations. It looks like you except for the servicing margins came in a little bit like you have a cumulative revenues overall I know, but just trying to think about that line. There specifically I know bank of America boarded you've got.
Mix et cetera any.
Any one timers to call out there or considerations for that lies ahead.
You did and you're saying software solutions margins Yep Yep.
It's a good question really it does it up there is no one timers on from an expense perspective in the third quarter, we didnt have the benefit of lower medical costs like we had last quarter.
It was something that happened that that Didnt recur, we got back to more of a normal level from a year over year basis. It comes down to revenue mix really simply put so some of those anomalous headwinds were transactional have very little and with very little related variable costs, we have that termination fee and origination last year those come at 100% margin and then Andrew.
Replaced with margins that require support even even on a relatively limited basis with the new clients and then of course some of the acquired businesses. So it really is a revenue mix story more than anything there's really nothing else to know.
Got you thanks for that and then just on the change in the guidance here is it.
Predominantly open loop coming in with the acquisitions or is there some underlying.
Performance benefit there is any way to maybe break that up for us, but it sure sure. So the we exceeded our own expectations in Q3 because of volumes and so if you take the Q3 of beat excluding optimal blue that'd be kind of the first the first layer the next layer to be optimal blue.
And it's I think you can you can back into what those numbers are and then there's yes, there's an incremental amount above that if you look at it where the new guidance ranges and that frankly in an environment like this when we came into our if we gave our guidance for the second half of the year. We Didnt think there is any reason to be anything other than potentially a bit conservative.
So with six month left in this environment theres, even with as visible as as predictable as our businesses. We felt it prudent to be a little conservative now we have three month left theres only theres that theres theres, it's half the time remaining and so I think we tuned up the the guidance narrow the range raise that.
And now we get back to sort of thinking of things at the mid point going forward. So but it really is that it was it was first volume second optimal Blue and then and then third it was just a bit of conservatism in the prior guide.
I would be happy to see the raise thank you guys. Thanks.
Thanks, Justin.
Our next question is from Ryan Tomasello with KBW. Please proceed with your question.
Good morning, everyone. Thanks for taking the questions and I Echo the congrats on the strong quarter I'm just.
Just following up on your comments to an earlier question. It seems like one of the lower hanging fruit opportunities at optimal blue is the cross sell to the existing empower clients. Once the integration is completed so can you talk about what that sales cycle will look like I know Anthony you mentioned its ongoing the level of adoption you might expect there.
In power and Clark empower clients and what the opportunity could be in terms of revenues from those clients.
I'd say in terms of how I see the sales process.
Progressing is it.
We're in constant communication with our clients about all the innovations that we've got coming out.
The majority of empower clients had.
At least that built in.
Engine inside them power.
And obviously off of those is a lot more powerful so we're excited to bring that new capability in a to those clients and and as we sell you know.
New empower deals we will sell them with Optblue, just bundle, then and automatic and already integrated so.
So what we want to do is we want to change.
Just.
[music].
How we go to market in terms of.
Selling a loan origination system of course, it has a PBM and integrated into it it's not a separate decision more and more capabilities that we're bringing to market we want to bring it.
Integrated into a sales cycle and do more and more in a more integrated way, making it easier for our clients. So that's really what our focus is.
From a revenue perspective, yes, we we usually don't get into into pricing for particular deals that but it's as Anthony said, we'll end up bundling it into each of the deals and for existing deals will add it on a per loan basis, and then of course get the benefit of having minimums in the contract as well, but it's I think it's something that certainly.
We will be a nice add to the to the revenue per loan that we'll get from our empower clients and certainly it will be something that will help contribute to that 20% growth that we've talked about over the next several years for optimal blue.
Great and then you know 2020 is clearly shaping up to be a very strong year in terms of of for new sales and implementation. So I guess without explicitly asking for anything about 2021 could you maybe walk us through the moving pieces as we think about the organic growth power.
In the business next year that is already really in a bag per se from recent sales layers.
Layering in optimal blue being not truly accretive to growth.
As well as some other factors like the ongoing impact of forbearance and foreclosure moratorium system next year.
And specifically for recent client wins and implementations across software in DNA is it possible to quantify the cumulative impact of those from a run rate revenue perspective.
Sure I'll take that one Ryan it's a great question certainly its it is that time of year, where we're working on budgets and thinking about it.
And very detailed terms all the things that you're asking about it's a bit premature for us to go through those details, but what I will do is walk you through things in three buckets. The tailwinds that will that will drive the growth next year.
The known headwinds as we sit here today and then some things that are kind of a coin flip I'll say, we that meaning we don't we don't exactly know what which direction. It's going to go next year at this point because things can change, but it but its the single biggest driver of growth as it always is going to be the revenue related.
New clients on our platform, so MSP empower foreclosure or bankruptcy the primary platforms and I would say, we certainly having nice backlog going into next year I will characterize it where it is relative specifically to where we are this year, but we'll get.
It will it will have a full year of bank of America versus five months. This year and then certainly of other clients that have gone live or sign. It will go live next year. So that will be the primary driver of growth next year will go through the details of what we our expectations are for that when we give full guidance on our next call.
The other thing benefiting next year is going to be a return to more typical attrition. So we will have gotten.
It almost entirely through the anomalous headwinds, we talked about from last year as some of those have abated. Another one will abate later this year and then just a little bit carry over to next year. So we'll get back into that two ish percent kind of attrition level that we had experienced in the past and then as you said.
The accretion from.
From the optimal blue growing at the rate that it's growing so just not thinking of it just as well have a full year of it but it is accretive to our overall organic growth rate from a from a headwind perspective.
Origination volumes there is a large refinance eligible population, but we and most others are calling for next year's refined to be to be lower than this year, what where that ultimately land. We all will have to wait and see because it can be it can move around a bit, but but you think about that number as Anthony said before were.
Just not that sensitive to origination volume. So this year with the with the significant pickup and record level of origination. It's a couple of points of growth and.
And so as you think to next year, if there is a headwind.
It's it's one to two points may be somewhat we'll go through those details and tell you our assumptions on the next call, but but it's in the Grand scheme of things, it's just not a big number.
And then one kind of smaller detailed by it but I'll tell you. There's just because it's something we know is as you know when we implement our clients on our platforms MSP and power for example.
We have many times, we get paid for the implementation and we recognize that over the life of the contract we had a relatively large client that renewed and this year.
The end of the first contract and renewed and extended and.
Deferred revenue amortization.
Has now been been fully recognized and so that's probably a half point or so of headwind to next year. So not the biggest number but I pointed out because you asked and then the last thing you think about the piece the third bucket, where I say, it's something that we don't know at this point if the foreclosure volumes I would say as we sit here today, we expect them to come back in the second half.
And next year.
But but the exact timing and quantum is something that we're going to have to monitor and that's another thing that I would expect that we would be very explicit with what our assumptions are when we give you guidance for next year. So we can all measure against the same the same set of assumptions.
So that's kind of the revenue side, one quick thing I'll just I'll mention on the expense side is we like everybody else. This year benefited a bit from on the expense side related to travel and entertainment and sales and marketing cost because we're all working from home as well as.
We and I know many others also experienced lower medical costs and those are things that as we look to next year.
We'll return maybe not back to norm because things will fully be normal next year, but certainly will be some element of those coming back and we'll talk about that too when we give guidance next year, but those are like.
Think about the building blocks for next year Thats, how were thinking about it and I think the important next year, giving some of the variables. There that we would go through those details with you, but but that'll be something we'll go through on the next call.
Great. Thanks, guys. Thanks for taking the questions.
Thanks Ryan.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is with Jake Williams from Wells Fargo. Please proceed with your question.
Good morning, everyone.
When he joins.
I wanted to touch on the a strong margin expansion in DNA on how much of that was driven by favorable operating leverage with the originations tailwind versus any you know structural cost reductions there.
Anything more ongoing.
That was more about volumes that was more about and I wouldn't say just origination volumes, though because it was growing 6% on a natural basis. It. So it really is the operating leverage in the business there were no throughput.
Briefly cost actions, there that that really benefited but it really is a business that we've been very focused on positioning it for efficiency and so in most cases, we've made the investment once and we can deliver it many times, which is the way we like our business to run there are certain aspects within volumes that do bring with them some cost of goods sold.
No, but but in in other cases, it's it's a matter of selling in there is there is there is left there isn't a whole lot of variable cost. So we are as I said before very pleased with that with the perform performance in that business and maintaining for.
For now with the third quarter in a row of margins over 30% and that's going to be a focus group to continue going forward.
Great. Thank you very much.
Okay.
Our next question is with Stephen Sheldon with William Blair. Please proceed with your question.
Good morning, Thanks for taking my question just one quick one here just want to ask on the servicing side.
Hey, Thanks for going to Mark Your update I think you said, 29% on second lien I know you had keybanc recently just wanted to ask how.
Her stations on the second lien side in particular are going and the potential for market share to continue moving higher as we look out over the next few years.
Well.
We continue to have been a lots of great conversations around it the value proposition that we came out with.
Continues to resonate actually continues to resonate more because now as we come up with servicing digital that also works with the second lien solutions as well. So it's a more holistic solution. Even then we previously launched it so we feel very good about our continued.
In a momentum that we're having.
In the space and.
And look forward to continuing guide you updates on.
New wins as they come.
Thanks.
Yes.
Yes.
Hi.
Our next question is from here that.
Yes with Bank of America. Please proceed with your question.
Good morning, and thank you for taking my questions I wanted to us.
Yes.
The data and analytics business saw some nice growth there this quarter, but it has a lot of pieces and Thats. One question I did have one other can you provide maybe a little bit more color on certain things that might be resonating a lot currently and is there anything in there like is there any risk that this is resident those pieces are resonating because of elevated.
Forbearance and beep.
Maybe need a little bit more data and analytics on top of that could start dropping off mix still all after that or is it more the case of generally once you get and then you start providing some of these tend to be pretty sticky and.
Customers don't give up.
[music].
Sure, there's probably a few things I'd attribute the success, we're having in DNA growth. Obviously in addition to greatly.
Great leadership and.
Doing all the right things.
The first is rap and the introduction of our wrap platform. It really is an opportunity for our clients to view their data with our data to in a.
Sandbox, so to speak and really.
Look for new insights from it and so its powerful in that way and has led to a lot of data sales for us so that would be one.
The second would be.
Our Mcdonough flash so early on when the.
The pandemic broke out we're very quickly working with all sorts of.
Agencies and organizations and sharing our data as to what we're seeing in a really on the front lines and Thats contributed to interest and I'd say relationships that have been growing beyond the initial forbearance relationship into other types of data and analytics, we can provide to these organizations.
And the third I'd say is really just our integration to our core platforms. So again.
We really we talk about servicing and originations and data and analytics, but from a client perspective, we just want them to see one integrated black Knight and so as we integrate our offerings more and more into these core platforms and we sell them and include them in the packaging.
That's really continuing to help us grow that business as well so due to the three areas that probably call out.
Got it and then just one quick last question for me no that's optimal blue it's kind of.
Hi acquired I guess that is close.
Can you just talk about what your capital allocation strategy looks like from here.
In terms of the appetite for M&A is it more likely to be smaller tuck in type acquisitions or is it still.
Open to wider and just generally on your capital allocation. Thank you that'll be all.
Sure, yes at a macro level our priorities.
Remain unchanged.
Kept allocation perspective.
First we're going to continue to invest in internal.
Vesmen in innovation, we're very pleased with what we're seeing there and obviously going to stay the course.
But that said with the axis of Optum Blue we've increased our consolidated leverage to the mid threes.
And so that's a near term we have a focus on de levering, which will happen quickly based on the growth and EBITDA as well as our significant cash generation.
But.
Delevering won't reduce our.
Abilities to have potential tuck in acquisitions, our obviously our continued focus on internal investments.
Okay. Thank you.
Thank you again.
Ladies and gentlemen, we have reached the end of the question answer session and I would like to turn the call back over to Anthony to par CEO for closing remarks.
Thank you.
In closing I'm confident in our ability to grow market share and continue delivering significant value to our clients through our powerful and integrated solutions by acting with urgency to support their success.
These efforts will continue to drive long term growth and create value for our shareholders.
Finally, I'd like to thank my colleagues for their extraordinary work and commitment to our clients and to our clients for their trust and partnership last would like to thank our shareholders for their ongoing support please stay safe and have a great day.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.