Q2 2021 Black Knight Inc Earnings Call
Thank you for standing by.
The conference operator, welcome to the Black Knight second quarter, 2021 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
During the presentation, there will be an opportunity to ask questions joined the question of can you give me a press star then 1 on your telephone keypad.
You need assistance during the conference call you May see now on the operator by pressing star and the girl I would now like to turn the conference over eager Kim Investor Relations with Black Knight. Please go ahead Sir.
Thanks, Good morning, everyone and thank you for joining us for the Black Knight second quarter 2021earnings conference call. Joining me today is chairman and Chief Executive Officer, Anthony Jabbour, and Chief Financial Officer, Kirk Larsen. Our results released this morning, and the press release and supplemental slide presentation have been posted to our <unk>.
Web site.
This conference call is being recorded on the later be made available on our website. This call will include statements related to the expected future results for 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 describing on.
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 our non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation. This call will be available for replay via webcast through Black Knight's Investor Relations website at Investor Day Black.
<unk>, Inc. Dot Com I will now turn over the call the Anthony.
Thank you Steve Good morning, everyone and thank you for joining us for our second quarter earnings call line.
The 3 quarters of our clients, we used servicing digital as a way to deepen their customer relationships improved satisfaction and ultimately increase for attention.
We continue to add capabilities to the servicing digital platform through integrations with our loss mitigation automated valuation models and product pricing and eligibility or PPE solutions.
Regulatory compliance also remains of top priority for Servicers.
[noise] together are servicing digital and loss mitigation solutions give clients the ability to proactively work with our customers to electronically off of the most appropriate loss mitigation workout options and.
In fact, we signed 6 new loss mitigation clients during the second quarter.
Moving on to origination software business.
In the mid tier market, we signed 7 new empower deals in the second quarter matching are strong sales in the first quarter.
To put this in perspective, so far this year with our 14 signings we have already signed more on power contracts. Then we signed during all of last year and 2019 and are on track to meet our commitment of signing 20 to 30, new on power clients by the end of the year.
In addition, the enhancements and capabilities and breath of services provided by our acquisition of optimal glued last September has already resulted in multiple cross sales opportunities, including bundling or PPE with all 7 empower clients sold on the second quarter.
This acquisition is also creating opportunities for us to upsell empower to current optimal blue clients.
During the second quarter, we added 42, new clients to our PPE solutions, and 13, new clients to a hedging and trading platform.
Year to date, we've added 95, new PPE clients and 24 hedging clients and the sales pipeline is the strongest it has ever been.
Moving on to the data and analytics business. This was another business that demonstrated continued momentum coming off of the strong first quarter and again achieve strong financial results in the second quarter.
We signed 3 new clients to the rapid analytics platform or rap.
There are now 21 clients able to use this powerful cloud based analytics tool to make more informed decisions and set strategies for future growth.
In addition to wrap sales the DNA team had great success, selling or behavior models property data and Avm's.
The acquisition of collateral analytics last year continues to result in further cross sales success.
By integrating <unk> property data set along with the collateral analytics AVN, we're delivering of superior solution that provide the enhanced value to our mortgage clients.
Lenders and Servicers continued to realize the value of of leveraging are innovative and to end technology across the mortgage continue on.
As an example, 4 of the 8 companies that signed MSP contracts. This year also signed agreements to implement empower and each is leveraging our data and analytics solutions.
And as a result, we now have 27 enterprise clients.
Are strong momentum extends beyond sales as we continue to identify develop and deliver innovative solutions that create significant value for our clients and their customers.
As I've mentioned previously our next generation customer service solution enables our clients customer service representatives to see the same screens and information as the bores the assisting they can easily access all relevant information. So they can truly help their customers quickly and efficiently.
This innovative solution goes beyond improving satisfaction for the borrower.
Because it is easy to use and enables customer service representatives to succeed at their job. It also helps improve employee satisfaction, we understand that retaining talent is the challenge in today's economy.
As we deliver innovative solutions our focus is twofold.
To create a better board experience, while giving our clients tools that are easy to use and that help them increase efficiency.
Within our origination software business, we recently introduced 2 new sweet as part of our actionable intelligence platform or AIP.
The first is the fair lending sweet, which automate the industry standard regulatory reporting and delivers analytics focused on fair lending practices related to followed.
The second is the mortgage call report sweet, which automates the process of reporting loan officer status and production results.
Both suites provide information to the lender when they need it helping to make the right decisions at the right time, while decreasing the risk and increasing operational efficiency.
These are just a couple of examples of the new AIP suites that we have launched recently and we have many other suites being developed.
By combining our technologies expertise and data and analytics in the AIP, we're helping our clients transform their operations.
We also continue to enhance the work that Eva or AI solution is able to do.
We are excited to see a of his ability to support high accuracy levels and increased volume from our clients.
Finally during the second quarter, we integrated are optimal blue PPE with empower an added pipeline monitoring, which synchronizes the data between the 2 systems and continuously monitor for loan scenario data changes that could affect pricing or eligibility.
Because of this enhancement automates the data synchronization, which is traditionally of very labor intensive error prone process lenders benefit from greater efficiency and pricing that is always fully up to date.
Next I'm going to provide an update on how we're integrating a recent acquisitions tad further value and strength to our already powerful end to end solutions.
We believe M&A is a great tool to supplement our internal innovations, which is why we have completed 6 acquisitions since March of 2020.
The last month, we completed the acquisition of top of mind networks, which developed sure fire on market, leading CRM and marketing automation platform that is designed specifically for the mortgage industry.
The sure fire platform allows lenders and brokers to send the regular cadence of regulatory compliance communications to homebuyers during and after the buying process to help from say top of mind, so that when customers look to refinance or purchase the next tone the reach out to the lender who is continually provided value since the initial interaction.
With the sure fire platform lenders can easily send company branded educational and engaging content and videos to prospective customers and major milestones during the origination process.
Here are a few examples.
When the prospect complete an application the receive an email with information about the mortgage process and what to expect.
4 when an appraisal is ordered the receive a video of about what the appraisal is in the lie appraisals are unnecessary.
Each piece of content is created by mortgage marketing experts, who have been building of comprehensive library of information relevant to homeowners for more than 2 decades. This content is useful for first time homebuyers as far as repeat buyers to help create a positive and memorable buying experience.
Because it's out reaches automated it allows the lender the focus on generating new business, while the sure fire system helps them create customers for life.
In fact lenders are you sure fire have reported closing twice as many loans as they did before implementing the platform.
Top of mine also has the mortgage specific CRM the data fields and integrations to external datasets that are relevant for loan officers. While also providing work tasks that help lenders be more efficient.
With customer retention is 1 of the most significant challenges lenders and brokers are facing this was the perfect tuck in acquisition for Black night.
The top of mind platform is being integrated into both of our empower and new broker loan origination systems as well as our point of sale solution and PPE.
Of course, we will continue to support integrations with other technologies.
We also plan to expand the innovative platform to improve growth recapture and retention throughout the real estate and mortgage continuum in the near future top of mines platform move the integrated into servicing digital to expand our clients opportunities for retaining their clients.
Then we plan to integrate it into the Paragon MLS platform to deliver enhanced lead generation opportunities for realtors.
In early May we acquired NBS, the leading provider of performance data and analytics on agency backed securities clients use this data to get critical insights that help them make more informed investment decisions and better managed portfolios of agency backed securities.
Since the acquisition the feedback from clients of both companies has been very positive. We've already had success cross selling the enb's data to black Knight clients and have used it to enhance our monthly data reports like the mortgage monitor.
In summary during the second quarter, we had very strong sales delivered more innovative solutions and further integrated the acquisitions, we've made over the last year and the half we remain the laser focused on providing value and superior support to our clients, which has been foundational to our success.
Thank you for your time today on now turn the call over to Kirk.
Thanks, Anthony on good morning, everyone as Anthony discussed the second quarter was another very strong quarter per block night, we are encouraged by the momentum across each of our businesses with outside I'll take you through the details of the second quarter and a raised outlook for the year turning the 5.3 on a gap basis revenues were $361 million and a piece of 23 per se.
Compared to the prior year quarter net arms attributable spotlight were $40 million, an increase of 2 per cent dilute.
Diluted EPS was 25 cents, a decrease of 4%, reflecting the higher depreciation and amortization, resulting from purchase accounting, particularly related to the acquisition of optimal blue.
Net earnings margin was 9% compared to 13 per cent.
254, I will now discuss our adjusted results for the second quarter in the past we've made adjustments to our reported revenue to exclude the effect of purchase counting on deferred revenue.
Those adjustments are no longer applicable so we're not recording and adjusted revenue metric this quarter.
Organic revenue growth was 11% adjusted EBITDA was $177.5 million, an increase of 25 per cent ajar.
Adjusted EBITDA margin was $49, 1% compared to 52% on the prior year quarter adjusted.
Adjusted net earnings were $89 million, an increase of 13 per cent and adjusted EPS was 57, an increase of 10 per cent.
Turning now to slide 5 I'll discuss our software solutions segment results <unk>.
Second quarter revenues from the software solutions segment increased 25% to $305 million organic revenue growth was 11 per cent are servicing software solutions revenues increased 13%. The growth was price driven primarily by new clients and higher usage based on revenues on MSP.
An origination software solutions revenues increased 61%, including revenue from the acquisition of optimal blue as well as growth from new clients. The network effect on optimal blue and innovation sales organic revenue growth was 7 per cent, reflecting of tough comparison to the prior year quarter.
Second quarter, EBITDA increased 20% to $175 million on EBITDA margin was 57, 2% compared to 59.6% in the prior year quarter.
The margin contraction was driven by revenue Max and increased investments of innovation on client support.
Turning to slide 6 second quarter revenues for the data and analytics segment increased 16% of $56 million, primarily driven by strong sales execution across nearly all business line and revenue from an acquired business organic revenue growth was 14 per cent.
<unk> increased 29% of $21 million EBITDA margin was 37.2% an increase of 380 basis points.
Adjusted EBITDA of the corporate segment in the second quarter. It was the loss of $18 million compared to $15 million on the prior year quarter.
Turning to slide 7 I'll walk through our balance sheet highlights at the end of June we of cash and cash equivalents of $89 million total debt principle as of June 30th was $2.257 billion.
We had a revolver capacity of $902 million in our leverage ratio of 3.2 times on the net basis.
The market value of on investment in Dunn, and Bradstreet or Dnb was $1 billion $172 million on of pre tax basis and $1 billion on on after tax basis based on the closing price of D&B on June 30th.
Turning not of slide 8 a walk through our outlook of full year 2021, which we have raised from the guidance. We gave you may based on the strong second quarter and confidence in the outlook for the second half of the year. It also reflects the effect of our 2 recent acquisitions that will contribute approximately $16 million of revenue and 6 million of EBITDA. This year.
For the year revenues are expected to be in the range of $1 billion $447 million to $1 billion $463 million, which represents right on the bottom end of the range by $40 million and the top end of the range by $35 million that translates to reported growth of approximately 17% to 18% and organic growth of approximately 8%.
The 9%.
Adjusted EBITDA of expected him to be a range of $704 million to $716 million, which represents right on the bottom end of the range by $9 million on the top end of the range by $5 million the.
The lower revenue of the EBITDA conversion is due to the revenue mix and increased investments in our businesses, particularly in origination software as we position ourselves for long term growth.
Adjusted EPS is expected to be in the range of $2 and 23 to $2.29.
Which represents right on the bottom end of the range by 7 and top and by 5 cents.
Turning to slide 9 we continue to plan for incremental foreclosure revenues to be delayed until at least the first quarter of 2022.
With the market origination volume outperformance on the first half we now expect the full year had when the $5 million compared to 2020. This represents a second half headwind of approximately $12 million in.
In addition, we expect interest expense of approximately $83 million to $84 million, adjusted depreciation and amortization expense of $144 million to $147 million, excluding the net incremental depreciation and amortization, resulting from purchase counting ajar.
Adjusted earnings attributable to non controlling interest of $20 million for the $21 million. This relates to the portion of the ultimate Blue that we don't on it.
And adjusted effective tax rate of approximately 22% of 23%, which is 1 percentage point lower than our prior guidance due to higher expected research and development credits.
In full year weighted average shares outstanding approximately $156 million on.
But we do not provide quarterly guidance I want a variety of with some color as to how we expect to progress through the year, we expect to see sequential revenue growth over the remainder of the year from new client revenues, partially offset by origination volume headwinds, we expect the sequential growth to be comparable from cue to the Q3 and Q3 the queue for.
And we expect operating expenses in Q3 to step up from Q2 by approximately 4 percentage points as we accelerate investments in Eva and staff are professional services teams do the strong demand that we are seeing.
We then expect of small sequential increase from Q3 of the queue for do the typical seasonality.
The net result will be modestly lower adjusted EBITDA margins in Q3 compared to Q2 with slightly higher margin in queue for compared to Q3.
That concludes my remarks on I'll turn of the call over to the operator for Q&A.
Thank you.
We will now begin the question and answer session. The joined the question can you make the Star then 1 on your telephone keypad. It will get a total of the collagen your request.
Using a speaker phone please pick up your handset the for seeing any key will withdraw your question can you from the Star Nancy.
The first question comes from John Campbell from Stephens, Inc. Please go ahead.
Hey, guys. Good morning, Congrats on call. The results from the continued momentum and the new client ones across the board great work. Thank you for the John and thank you. Thank you.
Absolutely.
Wanted to touch on the enterprise clients you guys now at 27, I think back of 2015, you maybe had a handful of so.
Showing some really good progress there.
On the patch you guys said that the conversion enterprise typically drives the client Rev about 2 to 3 times higher.
That's been several years since I think you've kind of touched on on that you've added obviously a lot of solutions from San So just the 2 part question here. So first is that 2 to 3 times of the still the the way we should be thinking about that conversion took him to the enterprise and secondly, I don't know if you guys ahead of us on hand, but could you maybe help frame up what that remaining enterprise rent of opportunity is just what the base per day.
Well I'll start with that John on.
On the enterprise client side, it's really the strategy being executed right, we talked about creating a lot more innovations of a lot more ways to help our clients and to integrate them into a suite of solutions and as we demo of the Sweetest solutions and.
Our clients and prospects can see what it's like being on the Black Knight bus that has dramatically increased the number of enterprise clients and and you are seeing it.
And the numbers reported.
All past Kirk in terms of talking about the market and the conversion rate.
Yes, John from of revenue perspective of the multiplier effect certainly depends on the on the specific client and how their mix of of origination versus servicing but it is a significant opportunity on upwards of that 2 times in some cases of it could be greater than that so it is a significant opportunity as far as what what's left from a white space perspective.
It is significant because even there are instances of an enterprise client that may not be using in power for example for all channels and so adding channels of significant opportunity and can increase that revenue opportunity, but it's I don't have the the exact whitespace quantified here with me, but it is significant but were the important part is that.
The clients are seeing the value of that we see them more and more and I think it has more to day. The early stages of the transition to enterprise clients was very much of it it was the and MSP client and you tell them power to the client now the fact that we're signing both at the same time they are seeing the value of that in our sales team is doing the tremendous job of of demonstrating that value that signing up to both at <unk>.
1 time, we think is a is a terrific proof point as to the the value of the can be created being an enterprise client using us from front to back.
Okay. That's helpful. I might've missed this but on the overall just drilling down on the origination.
1 of the overall transactional rub mixed a day and then maybe what you've pegged and guidance from the back half.
Yeah. So the the revenue mix to day overall is it was 10% last quarter of total Rev was sensitive to origination volumes, it's now 9% in queue too and as we as we project forward. The queue for we think it's going to exit of the year at 8%. So.
We've talked about it not being a material driver and it's going to just continue to get smaller and smaller as we sell these new deals that have high subscription rates and volumes moderate a little bit. So the story continues to be more about the the script subscription revenue growth the selling new clients and much much less about the transaction on.
Side of things and so you'll see that in the numbers, okay and just to be clear of that you are talking just origination or is that overall.
That is total revenue total revenue yeah, okay, great. Thank you guys.
Mhm, Thanks, John Thank you.
The next question from from Ryan Thomas Sowell from K B W. Please go ahead.
Good morning, everyone. Thanks for taking the questions.
Just with the the step up and expenses in the quarter and that your guiding too for the second half of the year can you walk us through how you were thinking about normalized margin expansion of an expense growth on.
On a go forward basis, perhaps beyond the second half of the year.
And maybe put a finer point on the specific areas of.
Of the business that you are investing in the current right now you touched on a few of them on.
On how really how you're framing the Roy on not spend in terms of the revenue opportunity on growth acceleration behind certain of these products.
Sure.
All started a chance on I'll pass it to Kirk for the second part of the question.
Of the areas, where investing in with artificial intelligence, our correspondent lending our new broker.
Module.
Lone catcher, they're all things based on the confidence we're having in the growth rate. The momentum you get the luxury of looking further and further out in terms of.
Of what investments can you can you make when you have a high confidence of the return and so that's just where we're at right now we've got a lot of confidence in what we're doing these of the areas that we see.
We've got strong conviction that they're going to be great..1 is for us, but Kirk of I'll. Let you the answer the second part of the Orion I'll answer a couple of parts of that the first was the step up from Q1 to Q2, and then kind of the longer term model.
From from Q1, the queue too.
Some of it just to get a little granular as we have our merit increases for our per our employees of go from Q1, the queue too. So we have on a step up the inexpensive the hiring around the growth that Anthony just described on and then a little bit around incentive compensation expense based upon the outperformance of the business of this year or how would characterize the second quarter of a little bit of that carries over into the second half of the year as well.
But we're viewing these investments this year as as we look we're looking to not only 2022, but 23.24 20 were looking well beyond and making investments in areas that we think have have long term growth prospects and so these are investments that are I would not expect to be step.
Step up annual so they're not variable cost of that come with revenue. They are investments in in longer term growth and so some of that is in sales and otherwise.
The the resources implementations et cetera, and so.
As you think about that the long term model hasn't changed we still will target that 50 of 100 basis points of margin expansion each year, we would expect to be towards the higher end.
If growth is at the higher end of our of our long term guidance range. So model remains the same but this is the year is Anthony said of of higher than expected growth in a period, where the conviction around the prospect is giving us the confidence that we think now is the time to invest in areas that that will drive long term sustainable growth.
Yeah, maybe just hang on to it I tell you is when.
And of probably 18 months ago, when we saw an opportunity to invest in our sales on our data and analytics business and again had high conviction and we're seeing the results from that as well. So we got great visibility on where we can make investments and where we can get the returns that we would expect.
It's great I appreciate that Sir a response from both you and.
Regarding the the 2 integration announcements you made.
For optimal blue and empower and secondly for servicing digital with several of your other products is there a way to perhaps quantify the potential revenue opportunities that does open up particularly on the optimal blue side with the power.
For example, maybe you could touch on the hypothetical revenue opportunity from existing empower clients cross selling too optima blue and if there's any.
I guess direct pricing uplift or however, you would quantify it on the servicing digital side from those integration.
Probably the best way to describe it is.
Is that.
The strategy, we have of integration will drive results were seeing that and so and many of the examples of keeping like the pipeline monitoring we talked about and of prepared remarks.
The first of its kind we're creating.
I'll say greenfield opportunities here and so we see on offer to I'll leave it to Kirk to quantify it.
But.
We clearly of bundled R PPE capabilities into all of the optimal Bruce sort of hint of all the and power sales that we've had and and 1 of the empower wins, we had in the quarter was to an existing optimal blue PBE client. So we're seeing the the benefit of the integration.
Coming through that way.
True kind of if there's anything the what you can quantify other than it's just a very large opportunity that we see out there to go after that's the way I would characterize it.
Great. Thanks for taking the questions.
Thank you Ron.
The next question comes from the <unk> 1 from J P. Morgan. Please go ahead.
Okay. Good morning, everyone. So is a great day correct with you all and the appreciate all of the of organic comments just wanted to ask also on the lower margin conversion totally understand that it's offensive and investments here, but are.
Some of the acquisitions also contributing to.
The margin any surprise, there and just trying to better understand how much of his types of bad verses mix versus the investments debt that you're making.
Great question of the engine and good morning, it's great to hear from you.
If you think about the in totality.
The acquisition of coming into the year of the 3 that we've done next spring definitely having an effect on margins. It was pre revenue it's in investments of the growth area.
Actually has very very attractive margins, so not dilutive to any margins that we have and top of mind is about a 30% margin business right now with a lot of opportunity as it the scales, but it's going to be of fast grower for us as.
The scale of the margins will get to be attractive relative too.
To the enterprise over time, so that that is an element of it as you looked at the second half and you think about the change versus our prior guidance, bringing that revenue on at those at those margins that's definitely a part of it but we will do those deals that that that fill out the product portfolio will do those all day and know that we're going to grow them note.
They're going to scale know that the margins will be attractive app overtime, but that definitely is a part of it.
Got it perfect and then just.
Just on the staying with the M&A subject I think 1 of the themes this earning.
Earning season right is.
Some of the digital modern players have a little bit more freedom to do dilutive or creative deals.
And the traditional players you'll have a different standard get the margins and.
And whatnot. So I'm curious if your appetite Anthony to do deals, where maybe to get a little more creative with the new larger things to enhance growth is that is that changed in your mind or do you feel like you can do what you've been doing with the puck in the in the organic investments on the digital of Fries.
Well, we always say, we are in and company and we're going to do vulgar.
Certainly from.
From a.
The.
That perspective I think.
You've seen the agenda right here of Black night, and it's a heavy focused agenda around innovation and new technologies, we certainly see the opportunity of continued to do tuck ins roll of the men they come in small.
They come out large.
<unk>.
In every case here, we've got a great.
Capability to.
The leverage and and we're also not mandating this business quarter to quarter bright. So in this case here, we see an opportunity to make real investments to continue to really grow. This company, we're making them and we've got conviction and want to be on the record with that conviction.
Knowing that we're going to achieve the results from these investments so.
So overall as we as we look we feel very very strong and.
Our capabilities, we see it in the wind rates I mean, the majority of our organic growth is coming from new clients choosing to come on to our platform from selling our new innovations to existing clients.
The the strategies of working exceptionally well here, it's pedal to the metal for us.
Yep.
The stoffel, Thank you guys.
Thank you tend to do.
The next question comes from the here <unk> from the Bank of America. Please go ahead.
Hi, Thank you just.
First maybe if you could just stop I apologize if I I think I missed it from the script.
I'd give them a little bit how much of the guidance increase is from the closed acquisitions.
So we $16 million.
Is it related to to top of the line and the MBS.
Okay.
And that's the revenue of right.
That's the revenue Yep Yep.
Okay, and then I wanted to ask about the shopping please.
The the servicing business did really well those of shopping please in the.
Growth, if you will day with that anything worth calling on maybe of clients coming on on some large clones of.
Getting adding some add on services all.
Know, if there's anything worth calling on from that.
Please.
Sure Yeah, Yeah, the 13 per cent growth in servicing was.
Really the new clients the single largest new client that came on was bank of America. So that they came on on the third quarter of last year. So we had a full quarter of growth comparison compared to last year, but there are other clients that came on as well I'd say the other drivers of growth.
Servicing where the things that we would expect the things that we would.
That we focused on which are in of a innovative sales. So those servicing digital has gotten tremendous traction 2 thirds of our clients. They are the the loans on on MSP are signed up to use servicing digital and then continuing to cross sell to the existing basically the team is doing a tremendous job there as well the 1 thing I would add and it was in the prepared remarks.
A bit better than we would expect it is what I'll call. The usage based revenues or transaction based revenue is kind of of the non core processing piece of MSP, which which which has been as new clients come on that revenue growth and it's recurring revenue as as our clients are winning in the market in there.
They're adding portfolios, they're using us to help help them bring those portfolios on that was an increase in the quarter. So that was really part of what drove that not only drove that growth, but frankly outpaced our expectations, both in the quarter and and the ear to day period. So we couldn't be happier with for for all of those that of question servicing growth.
In the over the last year or so I think this quarter was a was of great Testament to the strength of that business and has a very robust outlook for the year.
I appreciate that thank you and then just the last question of going back the margin.
Just wanted it sounds like you're so confident in achieving the 50 to on the basis points margin expansion long the tone, but I guess.
Liddy.
Said, the mom and studies available you are making investments now what are your expectations. Currently in terms of how long that takes and then when we snapped back with the snap back on the on being much higher than the 50 to 100 basis points because a lot of these on off as you pointed out variable.
And won't be increasing so like it on some of these may be just go away and.
In 2022 of 2023.
I wouldn't anticipate they would go away because as we invest in a of an AI. We're going to continue to invest we just made that many may it be adding the resources at the same pace that we did this year and so I wouldn't necessarily anticipate a snapback because the cost of won't necessarily go away. They are investments that we want to continue to make.
And and we're going to continue to make investments as we go forward. Because this is not as Anthony said of goal to see if we can expand margins on a maximum basis for a particular quarter or year. This is investing for the long term for the long term sustainable growth and so I think we will we will continue to invest but but I think this year is some.
What elevated because of the initiatives we have in place.
Understood. Thank you for taking my questions.
The next question comes from the <unk> Pattanaik from Barclays. Please go ahead.
Thank you I was hoping you could just the address the competitive environment total, but I know you talked about a lot of new clients when rates and so I was just curious.
If you could tell.
Talk about what you're seeing out there.
Sure amount of thanks for the question.
There's a lot of competitors as you can imagine, but our performance has been exceptional and I'm very proud of our sales team and I'm proud of obviously, all my colleagues of Black night, creating great products working with our clients listening to our clients and.
And how we're going to market as 1 black night is really paying dividends. So I just think if you were.
Where we have competitors and I'll say each of these areas. The power of the integration is significant so we talked about some of the integrations with.
The PPE capabilities with top of mind, we're integrating that into our origination platform where else can integrate into our PPE and so.
Driving a level of functionality of that just doesn't exist out there and there are many examples where we can point to things that only we can do and.
And I would say.
Driving innovations that ultimately are really affecting our clients revenue their expenses and their compliance and so.
That's why we feel it's not for a lack of competitors in the market, but it's our strategy of urgently, creating innovation and urgently integrating it and selling it and delivering it that I think is really putting us on such a strong position competitively.
Got it and.
Cook I think the way you calculate organic growth is different in or out of the company. So just to help US and then can you give us the.
Exact emanate contribution from all of the accusations of the last 12 months the first quarter.
I don't have I don't have it handy.
But what I would say is specifically if you were to look at the single largest acquisition the.
That contributed to the growth, which is optimal blue I think without that it was a point in the half or so lower somewhere in that area of point out of 2 points, so without without that deal which is by far the largest I think it's the 9 and 5 per cent somewhere in that area.
Alright, thank you.
Mhm.
The next question comes from Dominic Gabriel from Oppenheimer. Please go ahead.
Hey, Thanks, so much for taking my questions I'm out of my questions of been asked and answered, but I guess, when we think about the the new sales for the expenses again, and if we think about the the news sales professionals I guess, how much of the expense ramp that you're seeing.
<unk> is is new talent versus the competition for existing Talon and when you think about where you're building out your sales team given your just you've had a lot of success.
And client acquisition.
Where are you putting the new sales boots on the ground for some of your products.
Sure.
First of all of the the the additional expense tied to sales of small relative to what we talked about in terms of investments in our products and investments in just the additional implementation resources.
A very large backlog from continued strong sales and so on.
Seat, adding people to help on the implementation side is part of it so.
So I don't know if you thought it was a larger number or not but it's actually a relatively small portion of the overall expense.
And.
We're we're.
Adding the sales expense is really.
I would say more just across.
Each of the areas, we talked about adding expenses sales expense on.
Selling to a non black Knight clients, having a separate dedicated focused team just selling our capabilities out into the open market and that's worked well for us we've ramped up in the past but.
That's how that's how I explain it like I said the majority of expenses are on.
Areas like artificial intelligence correspondent lending and our new broker solution that were coming out with and and like I said.
We've got confidence will see the results from that and you'll see those results as we.
Continue to roll it out and.
And have success in those areas.
Great Great and then I really appreciate that when you think about turning the you kind of answered this in different ways, but maybe I can ask this question in the end of different way when.
When you when you think about.
Hopefully turning the corner on Covid and how the your underlying client demands of changed during from the free coven of posts Covid and all of these acquisitions that you've made that have been enhancing your capabilities I guess, how the the the client conversations changed of what are their ex have their expect.
Stations of what they need from you changed.
And how does that tie in to basically some of the acquisitions you've made of your positioning as we look ahead. Thanks.
Sure.
I would say is our strategy was the right strategy of number of years ago. When we started off on our path of innovation.
And creating of servicing digital capabilities Modernising all of our capabilities and so during COVID-19 when the world the remote and went digital we're sitting in a very strong position with the investments that we've made in the capabilities that we've had and the impact obviously of the pandemic led to a lot of strength in our modern last minute.
<unk> solutions, which is everyone's trying to rework the loans.
We've got the great capability to help them so.
That's kind of pre enduring and as I think post COVID-19.
Thanks.
We're excited with just the the momentum of the conversations that we're having with our clients I'd say early in the journey. They looked at US our accounts will look at us as they did from the very first time.
That they bought something from us and maybe even the servicing a decade ago. They are now seeing the black Knight in every day, there's more and more momentum of seeing the new Black night with all of the capabilities. All the ways that we can help and and that's what we're excited about there certainly there's going to be a shift in.
Volumes right as rates rise at some point and again the investments, we're making with our technology AI being 1 of the key ones is it's going to help our clients be more and more efficient.
When that time comes right they'll have less volume less revenue and.
With the work that we're doing with AI for an example will help them lower their expenses. So we're we're in lock step with them in terms of what their needs are.
And we feel really good about.
What's to come.
Excellent and maybe just 1 more of I'd really appreciate all of the color. When you think about your new acquisitions or just any acquisitions in general and you think about bringing some of those that are perhaps below the the average margin up to the company margin I guess, how does how does the black Knight typically done that is it because of you.
Rings scale to those businesses is it because you're kind of assimilate that work force into your own as of the combination how long does that usually take to get the ones that are perhaps a little lower on the margin site up to that average either within the segment or to the company average thanks, guys I really appreciate everything.
Thank you Dominic when we.
When we look at an acquisition we're looking at it in terms of how do we really integrate it and bring it into the company and so obviously at times there'll be synergies that will have with.
Some layer of some of the maybe corporate staffing layer on their side of our side, where it will get expense out, but certainly the key part.
Comes from the.
The additional volume that we're going to bring that acquisition, they're gonna come in small they're going to a large and so the contribution margin on the majority of these businesses are very high and so as the ramp up the revenues. We're also going to ramp up the EBITDA of those businesses. So.
And that's how we're modeling it and looking at all of these acquisitions were very disciplined very thoughtful about who we acquire.
And.
And what the plan looks like long the short term, but also of long term in terms of how we absorb it and bring it in.
So.
From of timing perspective, I don't know if it's the if there's a.
An exact number of thing of different based on the acquisition, but currently have any yeah. It really depends on where they are when we acquire them. So optimal blue is effectively at the company average we focus on the company average as opposed to the segment average we don't Wanna Penalise the business for being in the same segment is MSP that as the primary high margin. So we.
We would look at it relative of the total company and so something like optimum blue was virtually there and with significant opportunity to expand margins based as Anthony just described as they grow and some of the other businesses. We've acquired we're very close to our company average and so they were there in very short order and others, we buy something that's prerevenue, it's going to take.
It's going to take a few years and pretty pretty rapid growth, which is what we would expect from it if we were to buy it in that instance, so it really really depends on where they are but.
They definitely are of the business as we have acquired were much more about the growth prospects and capabilities. They bring to our clients as opposed to about how much cost we could take out there there were almost across the board of their revenue revenue growth plays as opposed to cost place.
The next question comes from Kevin <unk> from Zellman and Associates. Please go ahead.
Hey, guys when the ask about the or Servicers in the originators that are on their own proprietary technology platforms has has the tone of any conversations you've had with them changed over the past 6 to 12 months or so and obviously there's.
And acquisition of an incoming of MSP client, but any color you can provide on how large originators of the servicers using their proprietary.
Solutions are viewing their ability to innovate and incorporate additional capabilities as rapidly rapidly as you guys and how they view their proprietary tech versus start providers in general.
If that's what musicians of changed.
Yeah, Yeah, no I think it continues to change and continues to build momentum for us alright as the.
On.
And I would say, there's probably 2 different classes as well I think people.
Get their first on servicing and then second on originations.
So and obviously in this market.
You can see what the volumes on the originator on site just being hesitant in the change as well, but but we certainly feel that.
We've got.
Great attention and the market with our clients and prospects as were.
Sharing with our capabilities are and what it could look like and again if I.
Go back to the investments that we're making of where we're making them we're doing that because we believe that.
There is opportunity out there for us to go after and and I'd say from the sales perspective, we're going after it very aggressively we've got a culture here, where everyone cells and and every day, we're focused on any of <unk>.
Client of prospect out there, that's not leveraging our technology and how they could leverage him. So.
Okay.
Jason of side of sounded like because everyone. Perhaps so busy on the volumes are so high that they're they're less likely to be on the start a kind of of big platform switch to this environment No no no no no I didn't mean to imply that so thank you for correcting Kevin.
Our sales of originations are up there will be 2 to 3 times, what we did last year you've seen the numbers 2 on queue to I think we already signed to empower deals on the quarter. So we've got lots of momentum there but.
But the point was more around if you.
If you think of what.
On 1 is going to build from of proprietary perspective, I just think that there is an or the.
Servicing that day.
Handoff to us sooner than originations, but look we've had a lot of wind in the origination space you look at the track record of had recently, it's been significant so I was just trying to rank them of it for you, but we see opportunities in both of them like I said, we wouldn't be making the investments.
Saying and correspondent lending if we didn't believe that.
Okay. That's helpful take you for that clarification, that's all I have thank you again, thank you.
Once again, if you have a question the spread Star then 1.
The the next question comes from Ryan Thomas Hello from can you be W. Please go ahead.
Hey, Thanks for taking the follow up guys just circling back on the investments you are making it seems like 1 of the hidden gems that use.
Acquired with the optimal blue and that you've spoken to in the past is the low on trading platform Reggie trader and so I was hoping you could maybe talk about what types of opportunities. There are the scales scale that talk from over time integrated with the MSP.
And ultimately create some sort of exchange like platform, 4 msr's and whole loans.
On the.
That's probably maybe you could quantify.
The strength of that park from today in terms of revenues and growth rates and generally.
What investments you are making their or plan to make their overtime. Thanks.
Sure right.
We look at that and see that there is a a large opportunity.
Down the road with the estimate a lot of things have to change so as we're looking at investments.
We're trying to look at the things that we can control and I think with this 1 there's also market effects that we won't controls. So we're being mindful of that as we work with our clients and understand what their needs are but we certainly believe that there is an opportunity there.
It's not 100% within our control and so of the investments that we're making right now that isn't 1 of them that were making a significant investment on just for clarity of an additional.
Investment in but it's 1 that we continue to believe as in the market unfolds that there could be opportunities there for us and we are really well positioned.
With the capabilities, we have with the trading platform with the MSR evaluation capability hedging.
Client relationships et cetera, So I hope that gives you the color of you're looking for.
It does but maybe you can just.
Clarify Anthony what you mean by it.
It being somewhat out of your control what what do you think structurally needs to change in the market for a plot for them like Reggie traitor to really accelerate and adoption.
Well I just think it's.
Changing.
The existing practices and it's easy to change the existing practice with 1 client at a time harder to change and that's why it's like I said with the optimal blue why we never built the capability, we acquired it there's a market effect that.
That they had and that's a very difficult thing to to.
To create technologies easier to create the market effect is harder and that's why like I said, we made the decision to acquire optimal blue and so with the loan trading platform I think 2 of lesser extent, they're still the market effect, that's required and look we're staying close to it everyone joked. It's it's my pet project inside the company, but.
But I do believe that.
There is opportunity for it it's.
It's just not something that flashing at us like some other areas, we see flashing opportunity and we're doubling down to go after that opportunity immediately.
Got it thanks for taking the follow up.
My pleasure on.
This concludes the question and answer session I would like to turn the conference back over to Mr. Anthony Gabor for any closing remarks.
Thank you.
Yes. Once again, we're pleased with our strong results from a confident in our updated outlook for the remainder of the year I would like to thank our clients of their trusted and strong partnership on my block net colleagues of the dedicated support of our clients and our great company. Thank you for joining us for today's call and for your interest in Black night enjoy the rest of your day.
This concludes today's conference call you may disconnect. Your line. Thank you for breakfast the painting and have the appointment day.
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