Q4 2020 Black Knight Inc Earnings Call
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Greetings and welcome to the Black Knight fourth quarter and full year 2020 earnings call.
The 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's now my pleasure to introduce Steve meager kind of Investor relations with Black Knight.
You may begin.
Good morning, everyone and thank you for joining us for the Black Knight fourth quarter 2020 earnings Conference call. Joining me today are Chief Executive Officer, Anthony Jabbour, 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 and 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 reconciliation between non-GAAP financial information to 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 Day at Black Knight, Inc. Dot Com I will now turn over the call to Anthony.
Thank you Steve Good morning, everyone and thank you for joining us for our fourth quarter earnings call I'd like to take some time today to discuss highlights from 2020 and our plans for 2021.
First of all I want to thank my colleagues for their efforts during 2020.
Couldnt be happier with all of that we accomplished as the team.
Of course like all businesses there were challenges that we had to deal with as a result of the pandemic, but our team was relentless in its focus on taking care of our clients innovation and setting the stage for growth in 2021 and beyond.
In 2020, we completed three acquisitions, including the strategically significant acquisition of optimal blue.
We also launched several innovative products completed the implementation of bank of America onto MSP and exceeded our sales goal in the midst of a global pandemic.
Which is nothing short of remarkable and.
In short 2020 was a year, where we continue to execute against our strategic initiatives to drive long term sustainable growth and value for our clients and other stakeholders.
The.
Throughout 2020, we maintained positive momentum across all lines of business and finished the year with a very solid fourth quarter with adjusted revenue growth of 14% and adjusted EBITA growth of 13%.
This performance further demonstrates our ability to deliver for our clients and shareholders even in the toughest environments.
I'll now move on to an update on the performance of each of our businesses beginning with our industry, leading servicing software business.
In the fourth quarter of 2020, we signed four new mid tier clients to MSP.
For the full year, we signed the total of nine new MSP clients matching last year's count and the most since 2013 of these.
These clients along with the other implementations in process will add nearly $1 9 million loans and three points of combined first and second lien market share by the end of 2022.
This brings our signed first mortgage market share of to nearly 64% in second lien market share to 30%.
The strong sales results are further evidence of the value that servicers see an MSP.
In addition to adding new logos, we also of pride ourselves on creating long term trusted relationships with our clients, which are the result of our commitment to delivering exceptional client service and continually investing in our solutions.
This client first culture is a differentiator for black Knight and was the key reason, we were able to renew nine MSP clients to long term contracts in 2020, including truest Andover and meal.
Our clients and prospects are also drawn to our servicing software because it helps them reduce their overall servicing costs, which have risen 180% since the great financial crisis, due to higher delinquencies and consumer protection requirements.
While these costs have come down slightly over the last five years, we remain laser focused on enhancing our client profitability by continually delivering innovative solutions.
Our clients also select us because they know we understand the critical importance of regulatory compliance and servicing and we make significant investments to support regulatory requirements.
Because of our depth of experience and expertise along with our continued investments. We believe we are better positioned than any other provider to help servicers meet their compliance requirements ultimately for the benefit of borrowers.
Next I'm going to provide an update on our origination software business, where we are seeing a high degree of success and significant momentum.
As an example during 2020, we signed 10, new empower clients, including Carrington mortgage services of top 50 originator.
In the fourth quarter alone, we signed five empower clients and added new channels for two existing empower clients.
Even with the strong sales success, we are of significant runway in the loan origination system market were assigned client market share is approximately 13% when looking at closed loans across all origination channels.
Specifically in the fourth quarter, we signed the top 75 for retail originator that is an existing MSP client for a long term contract to use our loan origination suite of solutions, including empower and our origination performance suite that supports the allo S.
They will also be using our optimal blue PPE hedge analytics and MSR valuation solutions.
As we've talked about previously our clients can realize significant benefits when they leverage additional black Knight solutions.
We are also seeing great momentum in direct sales of our origination performance suite, which includes solutions like point of sale expedite close remote online <unk>, Eva and <unk> services.
These solutions augment the L O S make the origination process more efficient and help lenders performed stronger.
This new team generated three times more direct sales in 2020 than in 2019, which is extraordinary growth.
In September we acquired the optimal blue and combine that business with our compass analytics business.
As a result, we now offer the leading product pricing and eligibility or PPE engine as well as the premier hedging capability in the industry.
Combined this team had a record sales year, adding 199, new PPE clients 63, new hedging clients and 30, new investors in 2020 to our network.
In addition, we crossover of PPE to six empower clients in the fourth quarter further highlighting the benefits of the combination of black Knight and optimal blue.
With the strong sales results in early 2021 momentum we are very confident in our previous comments around 20% plus growth for optimal blue for.
For 2021, specifically, we see growth of 25% and expect EBIT margins to approximate our software solutions EBIT margins in 2022.
Next let me touch on our data and analytics business.
In 2019, we signed for clients to the newly launched rapid analytics platform by the end of 2020, we had signed 12 more clients to this powerful cloud based analytics platform.
As a result of our recent acquisitions of Compass analytics collateral analytics and the optimal blue we have gained a wealth of data that we can combine with our other market leading data assets to provide even more valuable data and analytics across the mortgage and real estate life cycles.
As an example, we are now providing mortgage market lock data 60 to 90 days sooner than previously available via the App solution.
And we will soon be providing real time consumer specific rate quotes through servicing digital.
Look forward to telling you more about our integrated offerings as well as our ongoing cross sell successes on future calls.
As you can see despite a year that brought challenges for all businesses. We continue to win new deals and cross sell new innovative solutions to our clients at a steady pace.
These are just a few examples of how we are integrating our data and technology to deliver critical solutions to our clients and how lenders and servicers are looking to a single trusted and innovative partner and black Knight to deliver the solutions they need to be successful.
As I've said before one of our core tenants is to deliver new innovative solutions with urgency.
And to integrate these solutions across our ecosystem to help our clients grow revenue expand margins and support their compliance efforts.
Next let me take a few minutes to talk about some of our new innovations starting with our servicing solutions.
We remain focused on growing our servicing software business not just from new client sales as we discussed earlier, but also through cross sales of our innovative solutions to our exceptional client base.
Of these cross sales often come from new offerings, such as servicing digital and through acquiring enhancing and then commercializing products such as our next generation customer service solution.
These new capabilities, which we're adding regularly expand our servicing software addressable market every year.
As our clients continue to look for ways to increase customer satisfaction retention and profitability. We continued to see strong client adoption of our servicing digital solution.
In 2020, we signed 20 clients to servicing digital representing $12 7 million loans.
This means that clients, representing 65% of loans on MSP have now signed up to use servicing digital which is remarkable for a new solution and really demonstrates the value of both consumers and servicers receive with this offering.
Services are able to reduce costs and increase customer satisfaction by allowing their customers to self service.
Consumers benefit from the strong capabilities in the App that enable them to look at what if scenarios around paying off their loans to reach out for loss mitigation or in the low rate environment like today to start of refinance application.
Our loss mitigation solution is another offering we recently introduced that has had great adoption as of millions of loans that have been on forbearance plans reach their exploration date services need an intuitive powerful tool that will help to make decisions on these loans.
This has led to 23 MSP clients signing up for our loss mitigation solution in 2020.
So we now have clients, representing 33% of MSP loans signed up for loss mitigation.
Moving onto origination clients, we continue to sell Eva to originators of all sizes.
In fact, we signed another top 50 lender in the fourth quarter for this solution and now have six of the top 50 lenders signed up for this innovative AI solution that is seamlessly integrated with empower.
Most recently, we introduced seller digital which leverages AI and Decisioning to help correspondent lenders originate and sell loans and is fully integrated with empower and our PPE engine.
In 2020, we also introduced our point of sale offering as well as our guidance he closed solution.
We signed several clients to these solutions in 2020 and have a strong pipeline in 2021.
In December we launched our mandatory analytics solution that enables investors to measure the success of their portfolio of sales in comparison to overall market performance down to the than the loan level to help them make more informed decisions.
Finally within the DNA space, we signed eight clients to the unique and innovative <unk> Flash data report suite, which we introduced last year.
As we move to 2021, our plan is simple.
We will focus on executing on our strategic initiatives to drive organic growth through winning new clients deliver.
Delivering innovative products at an accelerated pace and cross selling our solutions to existing clients.
We will continue to pursue select acquisitions that will help us further solidify our strong offerings and above all we will remain focused on providing exceptional support to our clients.
Thank you for your time today now I would like to turn the call over to Kirk for a financial update.
Thanks, Anthony and good morning, everyone I'll now discuss our fourth quarter and full year 2020 financial results as well as our outlook for 2021.
The fourth quarter. The underlying performance was very solid the results came in as we expected with the exception of origination volumes that came in slightly higher it was another quarter that demonstrated the resilience visibility and predictability of our business. We're also encouraged by the sales momentum that has carried over from 2020 into 2021.
With that said I'll take you through the details and our outlook.
Turning to slide three which shows our GAAP results on a GAAP basis full year 2020 revenues were $1 $239 million, an increase of 5% compared to 2019 net.
Net earnings attributable to Black Knight for $264 million, an increase of 143%.
Diluted earnings per share was $1 73, an.
An increase of 137%.
The effect of our investment in Dun <unk> Bradstreet was the increase in net earnings attributable to Black Knight of $62 million or <unk> 41 per diluted share primarily related to a noncash gain as a result of their initial public offering and concurrent private placement compared to reduction of net earnings attributable to black Knight of $74 million or <unk> 50 per diluted share.
Net earnings margin was 19, 8% compared to nine 2%.
Now moving to the fourth quarter revenues were $342 million, an increase of 14% compared to the prior year quarter net earnings attributable to Black Knight were $47 million, an increase of 265% diluted EPS was <unk> 30, an increase of 233%.
The effect of our investment in Dun <unk> Bradstreet was an increase of net earnings attributable to black Knight of $1 million or <unk> <unk> per diluted share compared to a reduction of net earnings attributable to black Knight of $36 million or 24 per diluted share.
Net earnings margin was 12, 3% compared to four 3%.
Turning to slide for I'll now discuss our adjusted results for the full year and fourth quarter.
For the full year 2020, adjusted revenues were $1 $239 million, an increase of 5% compared to 2019.
Organic revenue growth of metric that we are introducing due to the acquisition of the optimal blue was 1%.
Adjusted EBITDA was $610 million, an increase of 5% of.
Adjusted EBITDA margin was 49, 2% compared to 49, 5% of.
Adjusted net earnings was $322 million, an increase of 9% and adjusted earnings per share was $2 11, an increase of 6%.
For the fourth quarter adjusted revenues of $342 million, an increase of 14% compared to the prior year quarter organic revenue growth was for 4%.
Adjusted EBITDA was $168 million, an increase of 13%.
Adjusted EBITDA margin was 49.0 per cent compared to 49, 5% of.
Adjusted net earnings was $94 million, an increase of 16% and adjusted EPS was <unk> 60, an increase of 11%.
Turning now to slide five I'll discuss our software solutions segment results.
In the fourth quarter revenue for the software solutions segment increased 14% to $291 million.
Our servicing software solutions revenue increased by 2% as loan growth from new clients more than offset the previously discussed headwinds, including the effect of the foreclosure moratorium that in and of itself reduce revenues by $12 million or six percentage points in the fourth quarter.
We continue to be very pleased with the underlying performance in our servicing software business and the outlook for growth as we look forward driven by both new client additions as well as the cross sell of the new innovative solutions.
In origination software solutions revenue increased 56% driven primarily by the acquisition of optimal blue new clients and the benefit of higher origination volumes.
Fourth quarter, EBITDA increased 10% to $167 million and EBITDA margin was 57, 5% compared to 59, 3% the.
The margin decline was driven by revenue mix, which I can summarize in two primary categories.
As I mentioned earlier, we had of $12 million headwind from lower foreclosure related volumes those transactions have very little variable expense. So margins are high on the decrease in those revenues. The second factor of the revenue related to optimal blue the margin on that revenue was over 50%, but still less than the segment average for.
The year 2020 revenues increased 3% to $1 billion.
$40 million and EBITDA increased 1% to $605 million EBITDA margin was 58, 1% compared to 59, 2%.
Turning to slide six in the fourth quarter revenue for the data and analytics segment increased 16% to $51 million, primarily driven by origination volumes revenue from an acquired business and sales execution.
EBITDA increased 30% to $16 million and EBITDA margin was 38% an increase of 310 basis points.
Full year, 2020 revenues increased 20% to $199 million and EBITDA increased 54% to $65 million EBITDA margin was 32, 6% an increase of 720 basis points.
It's worth noting that this is the first year that our data and analytics segment exceeded 30% margins as we've said before we are focused on achieving 30%, but we will not stop here.
Adjusted EBITDA for the corporate segment in the fourth quarter was a loss of $15 $4 million, which was flat for the prior year quarter and $59 $5 million for the full year 2020 compared to $58 million in 2019.
Turning to slide seven I'll walk through our debt structure at the end of December we had cash and cash equivalents of $35 million total debt principal.
Principal as of December 31 was $2 billion $214 million.
The revolver capacity of $702 million and our leverage ratio of three three times on a net basis.
Before I walk through our outlook for 2021 I'll go through the details of our investment in Dun and Bradstreet chairs.
Turning now to slide eight we earned $54 8 million shares of Dun <unk> Bradstreet the market value of this investment was $1 $265 million based on the $23 six closing price of Dnb on Wednesday February 10th.
Our invested capital is $493 million that puts our unrealized pretax gain of $772 million or unrealized after tax gain of $577 million and the after tax value of our D&B investment at $1 billion $69 million.
It goes without saying that we continue to be very pleased with our investment in Dun <unk> Bradstreet and the performance of the D&B team.
Turning now to slide nine I'll walk through our outlook for 2021.
GAAP revenues and adjusted revenues are expected to be in the range of $1 $394 million to $1.422 billion.
Representing reported growth of approximately 13% to 15% on a reported basis and organic growth of approximately five 5% to 7%.
Adjusted EBITDA is expected in the range of $689 million to $711 million and adjusted EPS is expected to be in the range of $2 of 11 to $2 22.
Additional modeling details underlying our outlook are as follows.
With a proposed economic plan from President Biden potentially extending the foreclosure moratorium until September 30th we're planning for incremental foreclosure volumes to be delayed until at least the first quarter of 2022.
That represents a headwind of approximately $11 million in 2021 compared to 2020.
Our plan for origination volumes represents a decline of 7% from estimate of 2020 volumes of four three trillion with the first half of the year, having elevated volumes from 2020 and of decline starting in the second half of the year.
This represents a headwind of approximately $12 million in 2021 compared to 2020.
As we discussed on prior calls we benefited from a temporary reduction in certain operating expenses in 2020 due to COVID-19, specifically related to lower medical costs and travel entertainment expenses.
For 2021, we are planning for $9 million of these costs to come back, particularly related to the medical expenses.
In addition, we expect interest expense of approximately $82 million to $85 million.
Depreciation and amortization expense of $146 million to $150 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting.
The earnings attributable to Noncontrolling interest of $20 million to $22 million. This relates to the portion of optimal blue that we don't own an adjusted effective tax rate of approximately 23% to 24% and full year weighted average shares outstanding of approximately $156 million.
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. As a reminder, we plan at the midpoint of our guidance range.
In the first quarter of 2021, we expect revenue as compared to Q4 to be flat to down slightly due to typical seasonality.
We would then expect to see sequential revenue growth over the course of the year from new client revenue, partially offset by origination volume headwinds.
And finally, we expect run rate operating expenses in the first half to be similar to the fourth quarter of 2020 with sequential increases from Q2 to Q3 and Q3 to Q4 due to resource allocation and typical seasonality.
That concludes my remarks, I'll now turn the call over to the operator for Q&A.
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Yeah.
Our first questions come from the line of Andrew Jeffrey with Truest. Please proceed with your questions.
Okay.
Hey, good morning, I appreciate you taking the questions.
No.
The interesting Anthony to listen to you the new.
All of the the different digital offerings.
And the success, you're having in cross sell.
Can you talk a little bit maybe about <unk>.
New data sets do you think would be critical and could offer commercial opportunities.
I'm thinking of especially in your DNA business in light of the potential combination of.
Costar Group, Inc, Corelogic, which appears increasingly likely given this morning's announcement.
Sure.
Yeah, I'd say, we're obviously very pleased not just with the new digital offerings, Andrew but also.
The datasets like I said, we launched.
This year, the mcdyess flash, which was the.
Very entrepreneur of the team and term in the midst of the kind.
Of the forbearance.
The crisis.
The rising up getting daily feeds integrating into MSP looking at prepayment schedules.
On the daily basis, I'm really creating.
Capabilities that never existed before and.
And again very unique to black Knight because of all of the assets that we have.
No.
We'll certainly stay very focused on that space, we've got some great momentum and our data and analytics business.
But more so as the team working together.
And finding ways that our data can benefit our clients. So we're starting to see more and more of that and again, leveraging our our existing relationships with our clients leveraging our existence of the existing solution set with our clients.
To really embed the stator and make it more actionable and make it more relevant for them. So so it's an area that we're excited about and.
And we're going to continue executing against this game plan to winning game plan that we feel it's driving real positive momentum.
And oftentimes as we talk about what the underlying engine is producing in our company.
It's really the show you what we see going on under the covers and we've got some great momentum right now that we're going to continue to execute against.
Okay I appreciate that and then could you just touch briefly the follow up on <unk>.
Pricing opportunities in an optimal blue is it really just a function of new end markets customers and cross sell or is there an opportunity to actually explicitly priced value of that business.
Yes, no there absolutely is the opportunity of price to value with harpoon blue and we're doing that and.
You are doing and we talk about constantly is really getting value pricing wherever we're driving tremendous value for our clients and.
And just.
Benefiting by some of that so that work is underway, it's going well.
We're fortunate obviously that in that space.
Our clients are.
Doing exceptionally well in the origination space. So that's really not proving to be a challenge for us right now.
Appreciate it thanks, Thank you Andrew.
Thank you. Our next question comes from the line of John Campbell with Stephens. Please proceed with your question.
Hey, guys good morning, Hey.
Hey, John.
Hey on the servicing digital that that's been a real home run for you guys. I just wanted to focus on that so and just I guess some of the newer innovations that it.
It seems like they've kept kind of hope and deepen the competitive mode over the last couple of years, but first on the on the sharp adoption gains for sort of some visual you guys ever consider just.
I guess folding that into the standard offering you've been raising the base price and then secondly, if you guys can maybe just kind of talk to the newer competitive landscape. It seems like theres, a theres new be out there at the kind of got a recent round of funding why it might be hard.
For up and comers to breakthrough in the channel.
Kind of see as Youre keeping credit marks.
Sure, Yes, I'll start with on the servicing digital side, we are very excited there obviously with.
The adoption that we have and when you look at the pace that we're ripping through our base.
It really.
I don't know if it would be much different in folding it actually end of the product in raising pricing and.
And pricing is always the sensitive thing with clients as well so it's always.
Great when they have the choice and we're certainly pleased at the pace that it's growing and running and clients choosing to come on choosing to pay the additional fees and the client satisfaction is really off the charts with it. So it absolutely is a winner for us and look we're going to.
I think of broken record I apologize, we're going to integrate all of the other capabilities that we have.
In the company through servicing digital right like our point of sale to be right in the middle of.
The.
Our clients experienced in getting the refinance offering because as we looked at our data and analytics.
We saw that the client was prime for a refinance and presenting in two of them at that time, so doing more and more of that things leveraging what the exact right is that they can get through our PPP.
The engine sorry.
We will certainly do more and more of that.
Because it's the winter for us, it's what our clients need.
The win win win for us for our clients for their customers.
And we're going to continue to innovate on that we're doing more and more of that.
In terms of new competitors coming in I'm aware as well of some of it.
Race.
Some money recently, what I'd say is this is a very complex business in terms of really understanding the needs and the.
The needs of our clients and how do we make them better.
What I would share with you is for everything that they promised they can do we're already there the we're already there plus and.
So we're going to continue to focus.
What I'm proud of our.
Of our team here is that.
We've got great market share.
We focus on our clients like the the only client we have and we innovate like of hungry startup. We've got that culture here. We believe in it every one of US does if you could walk the halls, you could feel it and its resulting and momentum that we have in this business. We saw growing in 2020. We're excited we're off to a great start in 2021 so.
We'll always be mindful of competitors in any parts of our business, but we really really have conviction in our strategy and our game plan and we're staying very focused executing against it we got a lot of confidence it's going to be the winner.
That's the great run down thanks, Scott.
Thanks, Jonathan.
Okay.
Yeah.
Thank you. Our next question comes from the line of chance and Wang of Jpmorgan. Please proceed with your question.
Thank you. Thank you good morning, really solid results like you guys went through Anthony I wanted to ask on the pipeline again as always.
You talked a lot of integrated sales cross selling of lot of good examples I'm just curious.
The pipeline going into 2021 versus what it was this time last year of pre pandemic given all of the activity with John It seems like more energy around selling in general do you see a pick up here.
Yes, the Tien tsin, thank you for that.
Without question like I said, we've got some great momentum.
It really feels like we're firing on all cylinders.
Sales for growing our pipeline is growing.
The speed at which we're going to market with new capabilities and enthusiasm.
It really really.
It feels like we got just some great momentum here that we're really excited about.
And then just as a quick follow up I think Andrew asked it but just given your time at <unk>.
<unk> Bradstreet and what you've talked about you talked about on the data analytics side.
Is there a lot more to do the another gear to grow faster within data analytics, given some of the learnings and of course of the synergies you talked about as well just curious where we are.
Going into 'twenty one.
Well, what I would say with the data and analytics and certainly with.
As being more knowledgeable of the space and DNA in general.
You could see the great results that we've been having on revenue growth and margin expansion.
And I, absolutely do think that there is a lot more of that we can do.
There is.
It's really I'd say of limitless area for us in terms of.
Not just the data that we can create procure but when I. When we are really really matters. The most is how it's integrated into our other applications and how we can drive actionable.
Outcomes from the data data in and of itself. It's kind of it's nice to have it's interesting, but as I talk to Ceos I know what they want its what I would want I want something that drives in action and so leveraging that data more and more into our systems.
Sending actionable alert out for our clients is really what's going to continue to make it more marketable and more valuable for them and really be of direct linkage between what they're spending on it and the total results that they're getting from it. So so absolutely I continue to have a lot of passion around that very excited with.
What's in front of us and the team that we have to execute against it.
Yes, that's good stuff that's it for that because of the Halo effect there.
Thank you Tien tsin.
Thank you. Our next question is coming from the line line of Robyn Ryan Tomasello with <unk>. Please proceed with your question.
Good morning, everyone. Thanks for taking the questions missed some of the prepared remarks. So sorry. If this was already John but was wondering if you can give us your thoughts on some of the notice of all activity. We saw in the private markets recently for digital Pos providers with pretty significant valuation so.
You can give us the additional color on the trends youre seeing in your offering there and perhaps frame the size and growth of that business today.
Sure Ryan.
The point of sale is an area that we're excited about.
Really because.
If you think of what we're adding we're adding just a thin layer on top of an existing loans.
System that our clients are already using backend systems that they're already using and so this is just think of it as a simple veneer compared to the separate standalone application, where theres two different datasets too to keep in sync.
And more complexity.
That process and also the fact that.
We own all of these systems, it really gives us and the ability to create an integrated value proposition for our clients and their customers.
I really think is unrivaled and so.
So some of these.
Startups.
I'd say it came out the gate early and fast.
Here to us really getting on our innovation.
The focus.
And if you look at the pace at which we've gone up to speed with it it's been dramatic and if I look in front from what our client needs.
I will tell you in every LLS implementation the hardest part of the implementations all of us connecting in the point of sale. It doesn't matter what point of sale. It is that's always the longest pulling the tent and for us it being like I said just a.
Of the near that we put on top of our LLS.
Really is.
Really a non issue as part of our implementations and so from.
Our clients' point of view I think on the returns that they can get the.
Just the overall.
Ease of doing business the additional value that we can drive to integration to our other products.
I really think it's it's a no brainer for them and we're starting we're having those conversations with many clients right now.
Great and then I was hoping you can give us an update on capital allocation, particularly considering the lockup exploration on broad Street.
Bolt on M&A still on the attractive area for capital deployment and if so maybe.
What areas of the business do you see as the most complementary for that area and then more broadly are there business line extensions that management could consider of particularly on the real estate side as opposed to the mortgage side. Thanks.
Sure.
Mike.
Kirk will keep me honest here for I forget any of those questions but.
So I'll start with Dnb obviously.
Our board is extremely happy with the investments that we've made and how it's performing and we constantly evaluate.
All of our capital allocation opportunities.
Our board meetings.
But.
From.
A bolt on perspective and from a strategy perspective, it really remains unchanged.
Unchanged, our first focus will be on internal investments and innovation.
We're very pleased with the traction that we have there.
It's going to contribute around 2% of growth in 'twenty one so.
So the work that we're <unk>.
Doing the investments, we're making we're seeing in pay off we're seeing in pay off with our client satisfaction as well as revenue growth, we're going to continue to.
To focus on these bolt on acquisitions again, we've got this great opportunity of this great engine here, where you could take in the small acquisition that comes through our engine and comes out of much larger on the other end. So both of those are really no brainer investments for us to make from the capital allocation perspective.
Because the risk is is like I said very low for both of them.
With the recent acquisition of Optum Blue our consolidated Leverages three three times. So we will have the near term focus on delevering, but it will happen quickly, but the growth for having an EBITDA as well as our significant cash generation.
But.
But I'd also say if we saw something that.
And it was large and very exciting to us.
We'd find the creative way to make it happen. So that's kind of at the priorities I would say.
Around the bolt on and capital allocation in general.
The last part when you look for business line extensions and real estate.
Versus just mortgage look were.
Our approach here is really an openness to.
To really any M&A.
And it doesn't matter of fits in real estate or in mortgage of what parts of it but more of what's the natural adjacency that has to what we're already doing so I always think of it whats our birthright. If we acquired this company for us to cross sell it into more of our clients and again, we're always looking at having of.
The low risk acquisitions right going into it.
Knowing that we can cross sell it and drive the top line and really take whatever acquisition, we make a low risk acquisition for us and drive shareholder return and we're really really pleased with the progress that we've made and the track record that we've got and we just want to keep that going Ryan one thing I'll add is we.
We saw last summer I'll say, maybe a little bit before activity levels pick up with the kind of tuck in acquisitions that we typically look at we saw the number of targets increased dramatically and so I would say that over that time from last summer into today, we'd probably even busier than ever looking at opportunities.
Our criteria are very rigorous and tight around what kind of assets, we would want to acquire as Anthony just just spoke of.
And so we have a team that has the playbook, we execute against that playbook, but it is certainly a very active market out there and so we'll be very discerning as we always have been.
But know that there are a lot of opportunities. We havent, we have ample liquidity to do any and all of what we what we would would fit through our through our filters and we will continue to evaluate and be active there.
Thanks, I appreciate all that commentary.
Thank you Ryan Thanks, Ryan.
Thank you. Our next question is coming from the line of Ashish <unk> of Deutsche Bank. Please proceed with your question.
Thanks for taking my question. So a question focused on the lease niche of software, obviously solid momentum that drill.
Driven by new product generation.
My question. There was there are like how should we think about the momentum in the midterm, whereas the net dosing filmed the soft.
<unk> of all 40 of niche in and then you talked about 13% of market share and empower I believe what's your market share the in the E closing products and the cross sell not only onto the E closing customer, but also any incremental color on cross selling into the optimum for Ya.
Customer base. Thanks.
Sure great great great questions or Ashish, yes, no the the month momentum we have.
With our Pos system power is really exciting.
We're probably going to sign two to three times as many empower clients in 'twenty one as we did in 2020, so again when I talk about momentum.
Great confidence.
In that area as well.
I don't have an exact number on market share for E closing, what I'd say is it's lower than the 13%.
We talked about though for loans.
And so lots of room for us to run like I said the.
The technology and the messaging and the integration of all resonating.
That's really helpful color and maybe clarify if I can ask a clarifying question on the optimal for your contribution in the quarter I think based on the organic growth I guess like of $29 million for fourth quarter I wasn't sure. If I was doing the math right. If you can confirm that and then as you think about the contribution in 2021 any increment.
The color that you can collect tax.
Sure.
Little higher than your 29 was about $32 million in the fourth quarter and we talked about a strong growth of music grew over 30% in 2020, which came in right, where we expected it to be so everything that that they delivered what we expected and frankly, a little bit more if you think more qualitatively we've been very very pleased with how the.
Of that acquisition has has gone so far and the outlook for the future as we look to 2021 continued.
Continued strong performance and frankly that are very good Q4 from a sales perspective, and that's really the precursor to the first quarter in the second quarter for that business because of the short implementation timelines, but we're expecting we talked about 20 plus percent growth on prior calls for optimal blue for.
For and when I say optimal blue <unk> blue proper the business that we acquired we've since combined it with compass.
The business that we acquired we would expect would be growing 25% in 2021. So continued very strong performance driven by continued continuing the sales.
The new client additions as well as some of the price the value of mechanics that were discussed earlier on this call. So very pleased with the with that with the team very pleased how they've become a part of Black Knight.
And how actually how we've become one broader team and the integration of them with with our sales team on our biweekly calls.
The integration of the executive team to the broader team and just really how that has gone.
Could it couldnt be happier I mean, the fact that we are able to find an asset like that.
And in action and have it fits so well culturally has really been has really been terrific and great to see so we're excited about 2021 with.
With the optimal blue and frankly the years to come.
That's great. Thanks again for the color.
Thank you Ashish.
Thank you. Our next question comes from the line of Kevin <unk> with Zelman and Associates. Please proceed with your questions.
Hey, guys.
Kind of wondering.
Originators being a lot more profitable at the mid band.
In the recent years gave a sense on the per client basis.
How much they're spending has grown across all of your products over the past two loans.
And as a follow up if the profitability does weighted as origination volumes for how much you help counter of that of favorite.
Trying to trim their spending growth Andrew of reduce it over the next couple of years.
Sure Kevin So with US our focus is always around.
How do we drive value for clients and for their customers right. So it's either through.
Automation of certain steps, which.
<unk> allows them to be more efficient or.
Giving them compliance capability, which in this new administration, we think will be probably a little more of a priority for all of our clients than the previous administration.
Certainly the same if not more and.
And what we can provide to our clients customers in terms of functionality.
In the origination space.
We've had a just a lot of innovation in that area that we have developed or that we've acquired and we've seen great momentum in that space with our clients as I mentioned at the beginning of 2020, we organized our origination performance team that was the team that was selling.
Our innovations to the whole market share not just to empower clients.
And like we said the the TCP.
From that area of tripled in 2020 compared to what we did in 2019 so.
So again I think the key message here is.
Our innovations are really resonating with the market, there's lots of value that we're being able to create for them and I think the fact that they are profitable I'm sure helps on the sales cycle, but I really feel even.
In a few years' time, when maybe they are not as focused.
Not as profitable when refi shift.
I think what's going to happen is there'll be a more intense focus on other.
Of the things that we can do to help them lower their costs and help them on the profitability line.
So.
We're looking at what our innovations are doing to benefit them today and I think in the few years from now it will be more of a shift to efficiency as well as innovation innovation will always be top of mind for them right that those needs for them, but I think it will shift to <unk>.
Lot of things that we can do for clients to be more profitable than the few years' time from now.
Okay, great. Thanks, that's very helpful.
With one quarter under your belt with the optimal Blue you guys mentioned, perhaps.
Ending some extra value in.
One of the servicing exchange platforms, I guess can you give us some updated thoughts on the opportunity there.
Sure, Yes, so really what were again.
We're constantly looking at with the assets that we have how can we integrate them and create a compelling value proposition that really.
I can't be replicated.
And can drive real unique value for our clients and so one of them was tying it to our.
Our servicing platform and looking at how we can we've got.
The strong market share on our MSP sort.
<unk> platform and really what were looking at was.
As clients want to buy or sell loans by ourself Msr's, how can we help facilitate that through optimal blue and more than just the actual transfer how can we also shift.
And move it from one clients instance of MSP to and other clients incidence of MSP to really make it easy for more of that volume to flow through the system.
Because that just doesn't exist today right.
Wall Street back of the day with.
The group of folks under a tree trading and building of capability, where we could accelerate.
The speed and growth in that area by providing a capability that doesn't otherwise exist. So.
Yes, so thats absolutely an opportunity that we're we're looking at working on right now.
Okay, great. Thanks, a lot that's all ahead of.
Thank you Kevin.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is coming from the lineup of Mihir Bhatia of Bank of America. Please proceed with your question.
Good morning, Thanks for taking my question.
I'll just start with your guidance and I was curious you know in terms of your range from the low end to the high end, maybe can you talk a little bit about some of the puts the data, particularly I guess, what I'm curious on is how much of the.
Where did you end up in that range is driven by external factors with the it versus just the opt for.
Non.
The.
Now obviously, the baseline assumption that you implement at a certain level, but is it like a little bit more success cross selling will move you for the op is that likely.
Just given implementation bank loans is that less likely to benefit 2021, whereas for the 2021 Guy that's more driven by extending the fact, those whether it's for closure of revenues coming back origination market as being stronger than you anticipated just trying to understand that how much of execution versus external.
Sure I mean here.
Great question, what I'll do one of them when I walk through the bridge and as I mentioned on the call in the prepared remarks, we plan for the midpoint, So I'll kind of walk you down where.
Where revenue growth comes from at the midpoint of our range. So it's really very much the same algorithm as we've had in the past, which is price will give us about a point of growth.
Loan growth on MSP will give us about half of point the.
The single biggest driver and I'll come back to the details of this would be I would say within our control, which is which is sales. So sales will drive call. It nine 5% or so of growth within that number and within that platform and cross sell of driving the.
Most of that but innovation is driving a couple of percent and that's interesting from a perspective of if you go back several years to three years that innovation line would really be virtually zero.
And our long term algorithm sort of count on that as 1% to 2% of growth per year and for 2021, we're expecting 2% from that so we think that's terrific to see.
Attrition is about 2%, which is our long term range, we would say 1% to 2%, but it certainly is back to the high end of our normal, but still normal and certainly much better than last year. When we had the anomalous headwinds in call it 7% or so of attrition of the.
The next step in the bridge is really volumes and it really is the external factor that you described so foreclosure volumes about an $11 million headwind that the first quarter issue. If you think about when the moratorium went in place last year. It was in mid March and so we have virtually no another quarter of that and we're really not assuming that there is a return to <unk>.
Normal volumes at all next at all in 2021, and then the other pieces of the origination volume headwind again extraneous were assuming 7% the.
Only thing I can promise of use will be wrong at least by by of dollar.
But thats call it another rough point or so of headwinds. So a couple of points from from what I would consider truly extraneous factors and then theres about another point of of miscellaneous other things that are a headwind.
<unk> 2021, so that all nets out to that call it 666% or so of organic at the midpoint. So just peeling back and unpacking that that sales number of little bit whats interesting about it is as you would typically expect from us.
Is about 70% of that is already signed and so you can then you can then put signed in two buckets of what's already implemented versus what has to be implemented and about 70% of that signed amount or half of our sales goal.
He is actually already implemented and so a lot of progress has been made against what what is the largest.
<unk> in that revenue growth bridge and so what Youre left with is basically about 3% is true go get.
So if you if you then say okay to get back to your original question, which is what would make us be higher or lower in the range. There is really three things I'd point to.
One is as origination volumes, they could be better or worse than our 7%.
Foreclosure volumes could be different than our assumption, maybe some could come back this year, but based upon what we think is coming out of Washington that is going to be still very.
Borrower friendly and so we've pushed though we've delayed those revenues out to next year again not lost revenue is delayed revenues for the future for origination volumes is one I would say that sell and deliver revenue that 3% go get we could do we could do better than that we could come up with the short of that so that could be of variable within our range and then of what we saw.
Well there is a component of some of those ancillary solutions that Anthony was describing.
That we sell within.
Within origination.
That are that are transactional in nature and there is a ramp.
So the ramp of those ancillary solutions can be better or worse than we're expecting as well. So it's really a lot of the same things that we've talked about in the past, but just I want to give you some context for magnitude.
You can kind of see what it is still our 90 plus percent low 90% recurring revenue business. There is just there's only so much we have to go get in any given year because of the long term nature of what we do.
Great that is very helpful. Thank you.
For that.
One other question of actually did want to talk a little bit about some of these cross selling initiatives. You mentioned you know whether the servicing digital loss mitigation, maybe just help us parse out some of the.
Yeah.
So much of the revenue impact, but just you know do clients be more as the implement these on a per loan basis is it part of the bond correct, where you really get the benefit when the contract is renewed.
You've talked about you guys increased price for all of the free.
Additional things you would do for the contract when you renew the contract is it that way and just help us Dimensionalize maybe just.
What are some of the more exciting things as it just servicing digital and the loss mitigation activity or is there something else that you're particularly excited about within that product innovation suite of few will thank you.
Sure.
Coupling on the the new products that we're launching yes, we are charging for them. So they're all chargeable services.
Separate from.
Price increase that we talked about it around the kind of existing.
The solutions that we have.
And again, we're very thoughtful on these in terms of.
Yes, making sure we've got very strong client relationships so on the.
The renewals are clients of renewing with us.
Renewal rate is off the charts.
Hi, So we're very focused on keeping our client satisfaction as we bring more innovation to them in and take great care of them.
From a areas which have probably.
Lot of excitement for us there's a lot obviously servicing digital we talked a lot about loss mitigation is red hot as many of these loans in forbearance come off forbearance the need to be modified again that integrated tightly into MSP, we understand all of the rules regulations around it we bring.
And again one of the benefits we have all of these large sophisticated clients that we all brainstorm together on the interpretation of the regulation. So we have lots of confidence of being in compliance as we make it easier for them to modify the loans.
<unk> E close has been red Hot for Us a regulatory assist automation and empower has been a big seller.
The data and analytics space.
The <unk> flash.
Taking the.
The daily views of what's going on in the market. Unlike ever before has been really powerful and maybe lastly, our rap.
Application, where we're taking our day to our clients stayed in the cloud co collaborating with them has been really powerful and probably the last one I'd highlight would be our next generation customer service is really getting some great traction and so we keep pushing forward on these innovations.
And candidly what I'm really really excited about is our hit rate is so high on all of these innovations that we're bringing to market.
It's not common to have this many new products catch fire like these are catching fire. So that's what.
Again, just gives me confidence we're on the right track for doing the right things.
With our clients in mind and with the strong client relationships.
Adding onto our market share of staying focused on our clients and innovating.
It's a formula that's working really well.
Great.
It sounds like it. Thank you so much but one last question from me and then I'll get off is just can you just give us a quick update on the Pennymac situation. Thank you.
There really isn't any new news on that to report at this stage these things take a while to work through.
I guess the legal route but there isn't anything as soon as there is obviously, we will share with you.
Understood. Thank you.
Thank you Mary.
Thank you. Our next question is coming from the line of Manav Patnaik with Barclays. Please proceed with your questions.
Thank you good morning, gentlemen, I was just hoping you could give us the organic growth.
And number of leads by segments for this quarter and perhaps in the just what the assumptions are for 2021 day segments as well.
Sure. Let me just a quick grab that I mean, most of the most of the acquired revenue was in which I think we disclose what that what the.
The dollar amounts are.
Our release the.
Most of it is in the software solutions segment, and so that's really where most of the adjustment of either as a few million dollars in and DNA.
So if you look at organically and origination of if you kind of just parse that out so all of us in origination Theres no acquired revenue and servicing so on origination.
On an organic basis, it would be a little lower than we have been growing but it's the reason why we had manav just for your context.
Four of $5 million of nonrecurring revenues in the fourth quarter last year. So it would of been call. It high single digit excluding that and data and analytics organic would've been and I'll. Even say if you were to adjust for the we had about $3 million of volume benefit in the fourth quarter as well and so if you look at that.
It would be kind of in the low single digit area, but that's due to a tough compare.
In that segment too to the fourth quarter of last year. So.
I think Thats and then as far as 2021.
Organically again.
Just looking at it by segment I'll say.
<unk> got servicing that is going to be mid single digit grower.
The strong underlying performance of the engine is growing is doing very well in servicing we have that little bit of headwind of a quarter from from the foreclosure volumes in origination it is going to be.
The very high reported growth rate because of optimal blue, but organic it's going to be.
The low double digits, and then in data and analytics organically.
Organically of the mid single digits, So really where we would expect it to be getting through 2020 and growing through some of the historical anomalous headwinds that we've talked about in the in the.
The foreclosure effect, we're really back to that more normal largely more normal growth rate of course for 2021, we're talking about organic 6% in the face of a couple of points of foreclosure origination volume. So we look at it more of it really a couple of points higher than that is really what the underlying engine is doing but.
That's really what we see.
Got it that's super helpful and then.
Just on the data and analytics side in the mid single digits, all of which he is still the healthy double but given all of the different things going on the wall Street today.
Do you guys need and now the several acquisitions, you try and get that growth.
For the highest number of means that some of the dynamics going on in the segment lifetime the.
Higher more of like in the double digit range.
Well I think in our data and analytics business, where it serves a number of areas of real estate being one of them.
Our immediate focus had been on solutions that we can provide out of our DNA business that would be support our integrated value proposition right because of the wound and tighter integrated cross sold et cetera.
We think that there are other opportunities, obviously and just real estate standalone.
And what we'd look at is what's an adjacency to what we currently do.
We're again, we're always from a risk mitigation perspective.
All of these the.
The less the least risky acquisition unless there's something again that we saw out there that we got really excited about that we thought could really.
Lift the capabilities and the growth rate of that business, but we're certainly looking in that space as well and again, we're disciplined buyers and.
So we've got a really strong team we've got a lot of confidence in that are doing really well and so.
It's an area that we'd love to.
To do more M&A.
Alright, Thanks, a lot of things.
Thank you Matthew.
Thank you there are no further questions at this time I would like to turn the call back over to Anthony Jabbour for any closing comments.
Thank you in closing, we're well positioned to continue the momentum we had in 2020.
I am confident of our ability to grow market share and continue delivering significant value for our clients through our powerful and integrated solutions and I'd like to thank my colleagues for their extraordinary work and commitment as they met the challenges 2020 presented.
And I'd also like to thank our clients for the trust and partnership and obviously, thank our shareholders for their ongoing support please stay safe to of a great day.
Thank you for your participation. This does conclude today's teleconference. You may disconnect. Your lines at this time of a great day.