Q3 2021 Black Knight Inc Earnings Call
Greetings and welcome to the Black Knight third quarter 2021 earnings conference call at this time all.
All participants are in a listen only mode.
A question and answer session will follow the formal presentation if.
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 I would now like to turn the call over to Steven eager to Investor Relations at Black Knight. Thank you you may begin.
Thanks, Good morning, everyone and thank you for joining us for the Black Knight third quarter 2021 earnings Conference call. Joining me today is chairman and 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 and posted to our website.
This conference call is being recorded later, we made available on our website. This call will include statements related to 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.
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 call will be available for replay via webcast through Black Knight's Investor Relations website at Investor <unk> Black Knight.
Not com I will now turn over the call to Anthony.
Thank you Steve Good morning, everyone and thank you for joining us for our third quarter earnings call simply put the third quarter was an outstanding quarter for Black Knight as we once again delivered strong financial results and executed against our strategic growth initiatives, while focusing on integrating the acquisitions, we've made over the past 18 months.
Before I provide an update on our business I'll hit highlights on the financial performance and outlook.
In the third quarter, we delivered organic revenue growth of 10% with strength across both segments and outperformance compared to the market as it relates to origination volume related revenues adjusted.
Adjusted EBITDA growth was 19, 5% and adjusted EPS growth was 15%.
As a result of the outstanding third quarter performance and outlook for the fourth quarter, we are raising our full year guidance for revenue adjusted EBITDA and adjusted EPS for the third quarter in a row.
We also bought back $100 million of shares in recognition of strong cash flow and our stock trading at levels that we believe is meaningfully below its intrinsic value.
Based on the ongoing successful transformation of our business. We are updating our long term revenue growth expectation to 7% to 9% an increase from our prior view of 6% to 8% that was in place since our IPO six years ago.
Next I'll discuss how our ability to deliver new innovative offerings and integrate our solution has led towards strong sales success.
As we've discussed on prior earnings calls and in other meetings with the investment community a central point of our strategy is to deliver innovative products to further strengthen our end to end suite of offerings across the mortgage lifecycle.
And then integrate those offerings.
Clients can benefit from a more efficient integrated suite of solutions and their customers can benefit from a greater value proposition in terms of functionality.
I continue to be proud of how our team has delivered these new innovations with urgency and I. Thank our clients for their insight and continued partnership as we continually develop new solutions.
Let me give you a few examples of recent new innovations.
Earlier this year, we launched our underwriter assist solution, which uses AI enhanced automation and advanced decisioning capability to quickly and efficiently review loan package documents, thereby reducing the overall cost to originate alone.
Underwriter assist reduces manual review from the underwriting workflow to improve the efficiency and support the effective decision making by underwriters.
Also for our lender clients, we've added an innovative pipeline monitoring functionality.
Optimal blue PPE this new functionality continuously monitors prolonged scenario data changes that could affect pricing or eligibility and then validates pricing and eligibility for each change.
This allows lenders to provide even greater pricing accuracy and reduces manual intervention.
For our servicing clients, we continue to add new innovative capabilities to our servicing digital platform.
As an example, we recently added the ability to track homecare information like when repairs are done and create schedules for regular home maintenance and store relevant information about your house.
We plan to use this whole maintenance data to make our AVN even more accurate.
For example, if we know a house has been maintained well that data can be added to a condition adjusted ABM to reflect a higher value for the home.
We will also be enabling connections to insurance marketplaces, giving customers the ability to browse and select insurance policies directly within servicing digital.
These enhancements and integration strengthen the value of servicing digital by creating more reasons for customers to return to the Servicers app, which increases both retention and satisfaction decreases customer service call and give servicers another channel to cross sell new products to their customers.
As part of our growth strategy, we selectively pursue acquisitions and then we integrate those businesses and their offerings into our ecosystem.
This enables us to offer more market, leading products to our clients and allows the clients of those acquired businesses to benefit from our comprehensive solutions are continued investments and our ability to develop and deliver new and innovative offerings.
As I mentioned last quarter, we have integrated our collateral analytics abms, the optimal blue PPE and our advanced loss mitigation solution into servicing digital.
Since then we've integrated the recently acquired Purifiers, CRM and marketing automation system and to empower.
Loan catcher and our recently relaunched capture solution, which make each of these robust solution even more powerful.
Loan catcher our broker loan origination system is now integrated with our loan SR, PPE, which provides brokers access to products and pricing across hundreds of wholesalers. They can find the best price for their customers.
We are also loaded historical data from MBS a business, we acquired this summer and to our rapid analytics platform and we'll continue updating this data monthly.
And we have identified opportunities to enhance megass data with data from MBS and that we're in the process of enhancing these datasets.
These are just a few examples of how our focus on innovation integration and urgency drive all that we do and our clients are keenly interested and what we are delivering.
Last month, we attended the MBA annual convention.
We had many valuable meetings with clients and prospects.
Interest in our offerings continues to increase and our clients are excited about how we are integrating our solution to make their operations more effective and help them deliver a better customer experience.
Next I'm going to discuss how our innovative and integrated offerings have led to successes in all segments of our business.
And our servicing software segment, we signed four new MSP clients in the third quarter, and we signed 12, new MSP clients through the first three quarters of this year.
This is already more clients than we signed in all of 2020.
At the end of the third quarter, we had 21, new client MSP implementations in existing clients, adding new loans to the portfolio and progress.
Representing an incremental $2 1 million loans.
One of those implementations caliber went live this past weekend of October the.
The implementation went very well and we're thrilled to have caliber live on MSP.
In origination software, we have been focused on executing on our strategy to create a comprehensive end to end suite to digitize the origination process and increased efficiency through automation and artificial intelligence to reduce the cost to originate alone.
Today, we continue to execute this strategy as we add more innovative solutions from point of sale to PPE to remote phy node realizations as.
As we continue to successfully execute against this strategy, we are seeing significant sales success.
In fact, let me share some of our sales path across origination software.
We signed six new empower clients in the third quarter, bringing our total to 20, new clients through the first three quarters of each year.
We added 50, new clients to our PPE solution in the third quarter, which brings the total to 145 for the year.
We also signed six to eight deals in the third quarter, which brings total Eva sales to 22 for the year.
From an E close perspective, we signed seven deals this quarter and a total of 26 deals for the year.
And finally, the surefire team, which joined Black Knight in July closed 12 marketing automation deal in the third quarter.
As interest rates continue to decline in origination volume slowing investors are focusing more on managing msr's are hedge platform can help both investors manage hedge positions mitigate interest rate risk and maximize profitability.
We signed three new clients to our hedge platform into the third quarter, which brings the total to 27, new clients for the first three quarters of the year.
To further illustrate the strength of our ability to cross sell our comprehensive solutions, we bundled our PPE with six clients, who signed a power agreement in the third quarter.
Because optimal blue has developed strong and trusted relationships with its clients were able to cross sell additional solutions to these clients.
We also sold the new capture offerings to a top 25 servicer.
As a reminder, our capture product monitors leads from various databases and identifies loans with the largest economic incentive to refinance.
Paying a home equity product or get a purchase loan this.
This servicer use capture or to develop a refinance solicitation list based on personalized.
And term for each customer this.
This was based on the test case of just 36000 loans of which 6% of the consumer's applied for a loan.
With the average origination profit on a new loan of approximately $2000 for the NDA. This company potentially earned over $4 million on originations.
We continue to see the strong sales success across all the product lines in our data and analytics business.
Typically we are seeing a great deal of momentum with our larger clients around our AVM offerings as they focus on implementing a consistent and high quality valuation solution.
Lenders are realizing significant savings by using the same valuation from the loan solicitation through origination, especially for home equity lines of credit and portfolio analysis.
In addition to reducing cost using a consistent AVM across the entire process results in a lower risk to the lender.
Staying with valuation the FHFA recently announced that they would allow banks and mortgage lenders to use desktop appraisals instead of in person home valuations, which was a practice that started during the pandemic.
In the spring of 2019, we introduced solutions and workflow tools that can assist appraisers prior to conducting the appraisal of while conducting a desktop appraisal and allow homeowners to submit data to help with the appraisal.
Additionally, the data and analytics team focused on identifying datasets that we can bring together to deliver enhanced insight and create competitive lead generation customer retention and risk mitigation strategy has led to strong data sales and as we continue to innovate and enhance our rapid analytics platform.
Interest from audiences across the mortgage and capital markets segments continues to grow.
In summary during the third quarter, we had very strong sales delivered more innovative solutions and added value to our current offerings by further integrating new solutions, we've introduced and the acquisitions we've made.
We continue to make progress implementing the clients, we sign and providing superior support during and after implementation.
I'll now turn it over to Kurt to go through the details of the financials and our raised outlook for the year.
Thanks, and good morning, everyone as you heard from Anthony the third quarter was an outstanding quarter for Black Knight and we're very encouraged by the continued momentum across each of our businesses with that said I'll take you through the details for the third quarter and our raised outlook for the full year.
Turning to slide three on a GAAP basis revenues were $378 million, an increase of 21% compared to the prior year quarter.
Operating income was $83 million, an increase of 39% operating margin was 22% compared to 19%.
Net earnings attributable to Black Knight were $53 million compared to $128 million and diluted earnings per share was 34 compared to 82.
The prior year period included a noncash gain of $88 million or <unk> 56 per diluted share as a result of Dun <unk> bradstreet's initial public offering and concurrent private placement net.
Net earnings margin was 12% compared to 37%.
Turning to slide four I'll now discuss our adjusted results for the third quarter.
Organic revenue growth was 10%, which included a modest headwind of $3 million or 90 basis points from lower origination volumes to put the origination volume effect in perspective, our revenues that are sensitive to origination volumes represented nine 5%. Our total revenues in the third quarter and they were down 8% compared to a market decline of 21.
As reported by the mortgage bankers association or MDA.
Adjusted EBITDA was $185 million, an increase of 19, 5% compared to prior year quarter.
Adjusted EBITDA margin was 48, 9% compared to 49, 5% adjust.
Adjusted operating income was $148 million, an increase of 23%.
Adjusted operating margin was 39, 2% compared to 38, 6%.
Adjusted net earnings were $93 million, an increase of 15% and adjusted earnings per share were <unk> 60.
An increase of 15%.
Turning now to slide five I'll discuss results and our software solutions segment.
Third quarter revenues for the software solutions segment increased 23% to $320 million organic revenue growth was 10%.
Our servicing software solutions revenues increased 9% the growth was driven primarily by higher usage based revenues on MSP, new clients and sales of new innovative solutions and.
In origination software solutions revenues increased 66%, including revenues from the acquisition of optimal blue as well as growth from new clients. The network effect in optimal blue and new innovation sales.
Organic revenue growth was 14%, reflecting approximately four percentage point headwind from origination market volumes.
EBITDA increased 20% to $183 million and EBITDA margin was 57, 1% compared to 58, 4% in the prior year quarter. The margin contraction was driven by revenue mix and increased investments in innovation and client support.
Operating income increased 24% to $150 million and operating margin was 46, 9% compared to 46, 6%.
Turning to slide six third quarter revenues for the data and analytics segment increased 10% to $58 million primarily.
Primarily driven by strong sales execution across nearly all business lines and revenue from an acquired business.
Organic revenue growth was 7%, reflecting approximately four percentage point headwind from origination market volumes.
EBITDA increased 14% to $21 million EBITDA margin was 35, 8% compared to 34, 5%.
Operating income increased 16% to $17 million and operating margin was 29, 1% compared to 27, 7%.
Adjusted EBITDA for the corporate segment in the third quarter was a loss of $19 million compared to $15 million in the prior year quarter.
Turning to slide seven I'll walk through our balance sheet highlights at the end of September we had cash and cash equivalents of $78 million.
Total debt principal was $2 $497 million, we had revolver capacity of $663 million and our leverage ratio was three four times on a net basis.
During the third quarter, we repurchased one 4 million shares of our common stock for $100 million or an average of $73 32 per share.
As of September 30, we had approximately 8 million shares remaining under our share repurchase authorization.
Turning now to slide eight I'll walk through our outlook for the full year 2021, we have once again raised our guidance based on a strong third quarter and confidence in the outlook for the fourth quarter.
For the year revenues are expected to be in the range of $1 $466 million to $1 $472 million, which represents raising the midpoint of the range by $14 million that translates to reported growth of approximately 18% to 19% and organic growth of approximately nine 5% to 10%.
Adjusted EBITDA is expected in the range of $720 million to $724 million, which represents raising the midpoint of the range by $12 million.
Adjusted earnings per share is expected to be in the range of $2 34 to $2 36, which represents raising the midpoint of the range by <unk> <unk>.
Turning now to slide nine additional <unk> modeling details underlying our outlook are as follows we continue to plan for incremental foreclosure related revenues to be delayed until the first quarter of 2022 with a stronger origination volumes in the second half of the year compared to our prior expectations. We now expect no impact from volumes on a full year basis.
As a reminder, we experienced a tailwind of approximately $7 million in the first half of this year of $3 million headwind in the third quarter, we expect a $3 million to $4 million headwind in the fourth quarter.
In addition, we expect interest expense of $83 million to $84 million adjusted depreciation and amortization expense of approximately $145 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting.
Adjusted earnings attributable to Noncontrolling interests of approximately $20 million. This relates to the portion of optimal blue that we don't own we expect an adjusted effective tax of approximately 22%, which is at the low end of our prior guidance due to higher expected research and development credits.
And we expect full year weighted average shares outstanding of approximately $156 million.
I also wanted to briefly discuss the raise to our long term revenue growth guidance. Our continued strong performance in underlying momentum have led us to take this step if you compare the business today to where we were three years ago. The strength of our continued innovation accelerating platform sales and the structural benefits of acquisitions give us confidence in our ability to drive long term revenue growth of 7% to 9%.
That concludes my remarks, I'll now turn the call over to the operator for Q&A.
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Our first questions come from the line of Ryan Tomasello with <unk>. Please proceed with your questions.
Good morning, guys. Thanks for taking the questions and congrats on the strong quarter.
I appreciate the prepared remarks on the long term guidance increase but I was just hoping to put a finer point around some of the variables that are really needle moving in terms of the higher conviction in the outlook.
The specific areas you'd call out across the business.
And what range of growth of new guidance includes for the three major segments.
And then I guess, just more broadly thinking about the operating environment for the next two to three years, how are you thinking through navigating the business within that new 7% to 9% range inclusive.
The mortgage volume headwind thats likely to occur next year as well as just broader competitive dynamics, which clearly have evolved materially over the past few years.
Particularly in the originations business. Thanks.
So maybe what I'll do with that one is I'll take the competitive landscape first and then you can.
Give me update on the longer term variables.
What I would say Ryan in terms of from a competitive perspective is we're very excited with the momentum we continue to make.
And in this space our strategy is proving to be the right strategy.
Innovate and bring a lot of capability to market integrate them tightly to provide real value to our clients and their customers and do it all with urgency. So that we're there when our clients need us and that is working exceptionally well I keep reminding our team not to be distracted by any one competitor in any one silo of this.
Industry the focus on our end to end, that's what our clients run end to end businesses.
And we need to help them continue to find opportunities or to mitigate risks in their business and that's proving.
Proving to be exceptionally.
Powerful.
Our value proposition. So we're going to stay focused on that with the winning formula but Kirk if you can give some.
Guidance around the variables in the long term sure Ryan there's a few things that I would I would comment on the first is as it relates to volumes, we like to think of a long term growth rate exclusive of volumes because as you know origination volumes are a relatively modest percentage of our total revenue sub 10 per.
They certainly can move around from period to period, but over time, they've been moderate and I think revert to a mean and so as we think about that 7% to 9%.
It really has been looking at that on a volume neutral basis. If you think about the businesses and what great. What are our growth rates were expecting from those looking forward in servicing we'd be thinking of that in the area in the mid single digit area given its scale and.
And our outlook for that business, which we think is terrific.
For origination we look at that as a double digit grower in light of the assets and the runway that we see there both from a from a loan origination system perspective, where you're seeing terrific sales.
Think about all the other solutions that we have added around that and you think about how we've taken that business from being a loan origination system and our vendor network to really an end to end origination software suite, both through internal innovation as well as through through acquisition. We think the outlook for that business is outstanding and then for our data and analytic.
Business.
<unk> had tremendous success there team is doing a great job. We've taken that from early was really a low low single digit grower to what has been frankly, a high single digit grower and double digit grow organically of late but we're looking at that for the long term as a kind of mid single digit plus growth growth area and all those pieces go together to fit into that.
79% I would cut the 7% to 9%.
In a different way as well just to give you a little bit of extra color do you think about what the components are in a very simple way to think about it is that our annual price escalators in our loan growth on MSP kind of organic loan growth not new clients.
But that offsets the very modest attrition that we have which is typically sub 2% and so those really offset to what that means is.
What it means is that sales is what is what will drive that growth and if you think about what would comprise that two thirds to three quarters of that would be platform sales.
Power think MSP and some of the other platforms that we have and the remainder is innovation and cross sell and if you think about back component innovation why do we have conviction about raising this long term growth rate one of the key driver is innovation and our success of the new solutions and what that has driven and not only in isolation.
Product revenue solution revenue that they drive, but it helps drive platform sales and so that really is what one somewhat to get to the other but you really can't you. Perhaps that you can think of it in either way as well. So that's really what gives us confidence around raising to that 7% to 9% is the momentum around innovation momentum around platform sales that gets us.
Two it gets us to those those higher expectations.
Great I appreciate all that color.
I guess, just as a follow up last quarter, you called out incremental investments that you're making in the second half of the year to capitalize on various growth opportunities across the business is it possible to quantify what absolute level. The guidance reflects in terms of that spend and if there have been any changes to that thinking.
As it relates to my first question clearly the 7% to 9% topline framework is helpful. But are you also able to provide any context around our bottomline framework, including margin expansion and earnings growth.
Sure on the first part we haven't quantified the specific investments that we've made you could expect that we would have expanded margins in our in our typical area absent those investments, but frankly right now, but they're part of the cost structure, there and we've talked about those being not just in period investments that would then go away, but being investments there.
Wind resources that we would that become part of our part of the business part of the cost structure will be going forward. So we haven't quantified what that what that is specifically as.
As far as along the rest of the long term framework. We continue to expect margin expansion both at the EBITDA level and frankly accelerating you saw that we.
Disclosed at an operating margin metric this quarter adjusted operating margin metrics to really highlight the we're growing revenue, we're going to grow EBITDA faster than we're growing revenue, we're going for operating margins faster than operating income faster growing EBITDA and really scale down too.
That mid teens EPS growth that we've that we spoke of and that frankly, you saw this quarter as well. So the rest the framework hasn't changed we really just wanted to clarify where we think the.
The revenue growth expectations on the rest of the flow from there.
Great. Thanks for taking the questions and congrats again on the strong quarter.
Thanks, Brian.
Thank you. Our next question comes from the line of John Campbell with Stephens. Please proceed with your questions.
Hey, guys. Good morning, Congrats on the continued success and momentum in the business.
Thanks, John.
Okay. So I know, we're going to have to wait for the 2022 guidance as far as the total revenue and profit ranges, but if I just kind of double click on the foreclosure revenue.
Still feels like a little bit of a black box I think you guys did this year.
50 ish or so million in 2019, so just hoping if you can provide maybe just some high level direction around the kind of level of foreclosure recovery next year, and how that might ramp starting in <unk>.
Sure John I think Theres still are a fair number of variables there.
And maybe it is a black box as you described but where we stand today. If there are rules that are from the CFPB that are preventing foreclosures until at least the first quarter. There certainly is a backlog of seriously delinquent borrowers, but with where home prices have gone that certainly could mitigate could mitigate some of that and so.
As you look out there certainly could be a backlog of seriously delinquent borrowers that will end up at least with the startup of foreclosure process.
After loss mitigation, but then it's going to we would expect that it will recover to.
To the point, where there's just ongoing activity from borrowers that go into seriously delinquent status amend the foreclosure process start so it's not all a backlog, but but but potentially going forward. It's really as much of a just just new entrants into seriously delinquent status and then essentially foreclosure I mean, if I were if I were looking at this.
As we sit here today.
Youll see a path over over the next couple of years of volumes getting back to those levels of 2019, but the exact timing.
And pace of that I think we're still we're still waiting to see what happens when when the rules. When they are allowed to commence in the first quarter and see what that looks like so suffice to say we will do what we always have done which is tell you. What we know when we know it and as we bring forward guidance for 2022 in February we'll tell you.
Exactly what were assuming and we can all watch what happens together and we'll keep you updated as we see things moving but.
This is another one where.
While we continue to get closer.
There's still enough variables that it's difficult to call.
Okay. That's helpful. And then great work on caliber and I know that was an important strategic initiative for you guys. I don't know what you guys can say here, but I'm curious if there's anything to call out just relating to their recent acquisition and maybe any kind of plans to consolidate platforms.
Well. Thank you John first of all yes.
The teams very focused on it we're excited with the results that we had together with the caliber team.
We've got a great relationship with NRG overall, including Sharepoint and with any large.
The servicers that are out there we're in constant contact with them because.
Because we believe that.
Our MSP platform is the right solution.
For for.
The market and we continue demonstrated through lots of innovation and integration that we bring to it and so.
As you can imagine we are.
In pursuit of them and other large servicers not on the platform today.
Okay. That's helpful. Thank you guys.
Yes.
Thank you. Our next question is coming from the line of from Mihir Bhatia with Bank of America. Please proceed with your questions.
Hi, Thank you for taking my question.
I just wanted to make sure I go back to the long term organic.
Growth.
Guidance change just to start.
Understood. It correctly I think historically it used to be price escalators at about one 5% organic growth loan growth was 1% and then new sales was the remaining three to five ish percent.
Six to eight.
The new guidance basically that new loan growth Oh, sorry, new sales are going to be what drives.
He is what's moving up in the new guidance or is there like mixing and matching.
No. It absolutely is a higher expectation for new sales is racing and really if you. If you look back to when we first introduced the 6% to 8% back in 2015 in connection with the IPO.
Revenue growth bridge at that point would not have had an innovation line.
It would have had a platform sales line it would add price we had loan growth we've had.
Krishnan assumption.
Whats incremental today is really the innovation bar step and that got in that guidance and so that's really that's really where that change comes in but it's new sales.
Alright, and then those and then those innovation sales do they typically happen when contracts up for renewal did theyre always happening throughout the year, even just like I am not sure I can give like you know big onetime innovation like maybe where you acquire something I'm talking I'm, just like general innovation that Youre doing when do you actually capture the value for that innovation.
Is any of it given as part of the base contract and then when the contract renews you price up again for it or is it always any innovation is charged.
But what I would say any innovation does have a charge attached to it and whether we bundle it into a broader deal for a new client Corrado.
I had a renewal obviously, we decide but the key thing is we're in constant.
Communication with our clients, even if they're halfway through their contract about these new innovations that we can bring to market and that's the part that's exciting is if you think about innovation it drives growth directly from that innovation and as Kirk mentioned earlier. It also help sell platforms by seeing that innovation.
And by constantly having.
Extreme of it there's always a reason for our account executives to be meeting with our clients and always communicating and the more you do that obviously the more opportunity that you discover for both us and our clients. So it's a constant.
Throughout the life of the contract and certainly at the beginning or renewal of a contract as well.
Okay. Thank you just a couple of quick ones from me.
In terms of service digital can you tell us how many of your clients or rather what percent of the client base of the loan service by now.
Getting like doing using servicing digital and some of those.
Particular innovations.
Sure. So there are 28 servicing digital clients that are implemented over half of the loans are.
Better outstanding are actually implemented on servicing digital at this point, so theres still some implementation.
That would get us to kind of three quarters of the total loans would be signed.
Sign up for servicing digital.
Perfect and then my last question is just on capital allocation share repurchases. Obviously, you did some this quarter and I think for some shareholders I'm sure that was nice to see.
I guess my question on that is you know your share Count's still did increase a little bit this quarter.
The idea with the buybacks to mostly offset the dilution or is it more of a value based call where you think your shares are cheap and given your leverage how much capacity do you think you have here in the near term to continue executing on it.
Well really for starters, we believe our stock is trading meaningfully below its intrinsic value and it's certainly not reflecting the results. We're delivering the robust outlook that we have just what we see on the inside of the company in terms of the company building on momentum and great relationships with our clients and that.
Was the reason for this in the third quarter.
What I would add to that to your comment of how are we buying to offset the dilution the shares that we acquired and have repurchased in the third quarter significantly exceeded our annual.
Grant of equity and so we do not look at it as necessarily offsetting dilution, but just we look for the highest value we can create through allocating capital and so the share count didn't come down as much as you may have expected in the quarter because of the timing of when when we were buying we don't buy in a quiet period for example, and so it was later in the quarter, so it'll be overweight toward future periods.
Got it understood. Thank you.
Thank you. Our next question is coming from the line of Andrew Jeffrey with True Securities. Please proceed with your questions.
Hi, Good morning, I appreciate you taking the question guys.
The innovation Callout I think is really helpful. In terms of appreciating how you're innovating the platform.
I wonder on a couple of specific points.
Anthony can you talk about.
Some other potentially emerging life of loan solutions I'm thinking about cyber.
For one and any any thoughts on product development, there and also progress on integration of <unk> into MSP.
Yes.
And so those are two great ones Andrew.
From a client perspective.
On cyber specifically, we've got a very thorough cyber program in place here and as you think about lie often I'd highlight over and over integration integration and the power of it.
It's really if you imagine a world where.
Everyone every vendor did one thing and our client had six con.
Contracts 12 contracts every time they wanted to really revamped their platform you now have that many more.
Data points of risk you have that many more regression testing is you have to perform on any one of those vendors upgrades system Theres just a lot more.
Complexity that gets introduced in cost and impact to the end customers. So one of the key value that we rarely talked about so I. Appreciate you asking the question on <unk>.
<unk> more from Black Knight in an integrated manner is.
It dramatically reduces the cyber security risk because it's all within our data cloud and so and it's something that we take very seriously. So we wouldn't look at.
Necessarily offering products to our clients from a cyber perspective, we're not a cyber technology company.
We've got a very very strong program as you can imagine with the scale we have regulators are.
Constantly in our buildings working with US and were very strong that way. So it provides that type of security for our clients getting it all in one place in a very secure manner in limiting the number of.
Ingress and egress points that they'd have.
To your second question on integrating Eva to servicing it's absolutely something that we are looking at doing that.
I think a lot of opportunity for us to extend that.
We're going to continue to do that Andrew.
Okay look forward to updates on progress there and Kirk could you just quantify for us the amount of acquired revenue in the quarter.
It's actually in the press release.
In the table.
Steve do you have the exact amount with us it's in the footnotes Andrew we can we can share that we can look that up.
Ill follow up call, but its in the footnotes to the to the schedule in the back.
Alright, okay.
Your attention next time thanks.
Thanks, Andrew.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Tien Tsin Huang with Jpmorgan. Please proceed with your question.
Thanks, so much I really great results.
For sure just.
I wanted to ask on the backlog growth.
So business qualified pipeline that kind of thing obviously I know you don't.
Take the decision to raise your long term revenue growth outlook very lightly here. So you must be very confident in all of those things. So can you give us a little bit more on on the growth in the backlog and the qualified pipeline, especially on platform deals.
From a quantification of the backlog it continues to be very strong Tianjin and.
And growing and you can see why it is with the number of sales that we've had.
212, MSP deals this year and 'twenty empower deals and that is in part that isn't necessarily in part the backlog number isn't what would give us confidence in raising our long term growth outlook, but because it certainly but it certainly points to what will drive growth for the next one to two years, but it's certainly it's more of the momentum. It gives us confidence is it really more of a moat.
Mentum in the sales and the momentum and the innovation that gives us confidence in the long term growth rate.
You're right, we don't take that raised lightly at all.
Given our nature, but I would say that that certainly does give us give.
Give us confidence so we'll continue to evaluate providing a backlog number but we feel good about what that looks like.
Heading into 2022.
Understood and then just sort of asked about it but just thinking about.
Bundled or integrated sales versus point solutions providers, because it's because there are a lot of digital players that do the ladder.
Do you think there is.
A pendulum shift in any way towards more point solutions versus bundled or fully outsourced end to end just trying to understand how what youre hearing from clients and what they value.
Well Tien Tsin I would tell you at the MBA conference that took place we had a lot of great conversations with a lot of great clients and prospects.
And certainly feel the momentum of what we're offering is resonating and so I don't look we're mindful of every silo competitor out there, but from a client's perspective again, what I said earlier that power of integration and we're the only ones in our industry that can go end to end and our.
Space and across them.
Each of those areas, whether it's servicing originations data and analytics or secondary market technologies, we've got the leading products in those markets and so we're not asking someone to compromise one of the components to get an integrated suite. They are all winning in their own right and Furthermore, we're integrating them tightly right and a few things.
Sure Fire acquisition, we did it is already integrated into.
Our optimal blue PPE, so monitoring pipelines of originations coming or monitoring of service portfolio identifying.
Candidates for refi with a personalized offer handling that last mile.
Clients instead of just sending a biotech client handling it through share fire, having sure fire populate through servicing digital and it being more automated that's the power and you've seen it in the core banking industry that they have in terms of being able to bring lots of capability together and make what's a very complex technology architecture.
<unk> simple for clients, we're the only ones in our space that can do that.
We're focusing on it relentlessly and we're focusing on our clients service relentlessly.
Talk to our clients and they know how much we value them and like I said I think thats, just a winning formula for us in this space. So there'll be point solutions that will constantly come up but we're focusing on the broader issues for our clients and our strategy has been working and we believe it will continue to work very well.
Thank you Nobel yourself. Thank you Anthony Thank you Sir.
Excuse me I'm going to get into.
Thank you. Our next question is come from the line of Dominick Gabriele with Oppenheimer. Please proceed with your questions.
Hey, great. Thanks, so much for taking my questions and a lot of good commentary already.
If you just think about the net of your innovation products the margin on those products compared to the existing base when you're thinking about that incremental step up in revenue long term guidance out of those two compare to one another and I just have a follow up thank you.
Well you can imagine as a new product is introduced and gaining scale that it won't be at the same margins as say MSP for example.
Or the optimal blue PPE, given given the difference in scale, but we look at all of our products and yes, there's a cost to develop it as capital investment, but then over time given that all of our solutions are.
Software as a service highly leveraged capabilities.
The incremental margins are very attractive and so over time, we would expect them to get to.
To levels that are accretive to the total company margin, but certainly there is a path from inception through maturity that that it would take to get there likelihood for any new product.
But as they scale, but like I said, the incrementals are very attractive.
Okay.
And then maybe you guys can just take us through sort of some of the investment areas and how the product mix of the new sales can sort of affect the margin over time as we look towards 2002 and 23 that'd be really great. Thank you.
Well there is.
Like I said, it's a steady stream of.
These activities that would contribute so.
A number of them I can often blue we said is approaching our software solutions margin already.
As we look at some of the new capabilities, we've built underwriter assist our pipeline monitoring.
If we look at servicing digital and that might be a good one for us to expand on we look at that as another platform now so it's gotten to the scale. The eyeballs from end consumers on a constant basis, what more can we do with it we talked about.
Being able to manage contractors online and maintenance of a home and so as we just kind of tie it all in together.
What all of these things we're doing are helping sell the overall integrated platform, which is that obviously very attractive margins. So.
From a longer term midterm perspective, I'd just say.
Everything that we do we're doing in scale, we're building it in a thoughtful multi tenant in a way to drive the margins that you would expect and we would expect of the business.
And from our clients' perspective, the beauty is Theyre also saving money as we're expanding margins and doing more together.
Through the innovation and the integration.
Great actually maybe I can just hop in one more.
If we're looking at the <unk>.
Adjusted EPS guidance to 11% to 12% and as you think about your longer term.
Yes, potentially accelerating from these levels given the long term guidance.
Does buybacks, how do buybacks fit into your EPS growth assumptions as we look ahead. Thank you very much.
Sure.
What I would say is that capital allocation, certainly fits into that guidance and that capital allocation could be in the form of.
To be in form of debt repayment could be in the form of share repurchase can be in the form.
Of acquisitions, and so as we think about.
As we think about which bucket that will be and we certainly can model as anyone could.
As to how you get there and what what those tradeoffs could look like on a long term basis, but but as we as we think about it in any given period, we would expect capital allocation to be accretive to EPS and again drive it from <unk>.
EBITDA is growing faster than revenue operating them is growing faster than EBITDA, and then as we leverage the capital structure.
EPS growth faster than income from operations.
But I wouldn't I wouldn't peg necessarily a specific percentage as it relates to share repurchase just just by virtue of if there are acquisition candidates that we would want to.
Take advantage of acquiring we would do that.
With everything focusing on growth and responsible capital allocation. So it really in any given year could depend Dominic.
Thank you. Our next question is coming from the line of Patrick O'shaughnessy with Raymond James. Please proceed with your questions.
Hey, good morning, So I guess sticking with the capital allocation topic can you maybe provide an update on your outlook or appetite for incremental bolt on deals at this point.
Sure.
Our focus first is always going to be an innovation that we can bring to market and that's something we've communicated well to all of our colleagues in the company be creative find ideas, where we can do a simple add on it's a great return, but I'd also say.
We've got work underway, finishing our integration to the five deals we completed in the last year and a half.
But look we're always.
We're always going to look for ways that we can help create value for our clients and shareholder value.
And the beauty with our scale right now is that.
Pretty much anything that's an opportunity out there it comes across our desk.
And culturally I think we've done a.
A good job with the acquisitions that we've made bringing them into the company.
And so.
From an employee perspective, an acquired company, maybe part of the Black Knight family.
With any black Knight.
Remember who's been here.
For a very long time, and so we're excited about that and we will always be on the look for that.
Great. Thank you and then clearly innovation has been a theme of this call. How actively are you guys looking into potential use cases for blockchain technology within your solution set and I ask this in light of one of your servicing competitors announcing a blockchain initiative during the quarter.
Yeah.
Thank you Patrick the only thing I'll.
Correct Me if you talked about innovation on every earnings call because it's it really is the foundation for our company and a revitalization of our growth.
But on the blockchain side look we spent.
When you get into a cab and the driver talks about blockchain.
It certainly has the buzz and we've certainly focused on it spend time talking to.
All of our clients every major player in the space.
For the most part right now the feedback is it's a good solution looking for a problem.
And we're constantly looking to see if there would be a good.
Use for it and so that's how I would define it right now in terms of as we look at what's going on how to help our clients drive revenue improve their margin or stay compliant. Those are the key things every leader is looking.
Gives me is looking at in terms of running a business and we're not finding those use cases popping to the top.
At the table.
Alright, Thank you very much.
Thank you.
Thank you our next questions come from the line of Stephen Sheldon with William Blair. Please proceed with your questions.
Hey, good morning. Thanks.
I guess, just starting off here when you think about the workflows.
The origination process that you're addressing currently with AI, how far along are you relative to what it could look like.
We thought about the next three to five years is there a lot of room to move beyond areas like document reviews et cetera.
And are we generally in the earlier innings, there just given the level.
Inefficiency in the market.
And Stephen I would say we're in the early innings of it there because what happens is you get into it just kind of continues to more if you can continue to find more and more ways to drive value and add value and the beauty of it.
In terms of working with our clients as they see the innovation being introduced and they can see.
The efficiency, increasing as well, there's obviously interest in more and more that we can do in this space, but overall I'd say, we're in the early innings of it.
Okay. That's helpful. And then one more just wanted to ask kind of what investments you've been making on the sales capacity side.
Is it growth in sales momentum you've been seeing mainly been driven by increasing productivity and positive impact OTA syndrome enterprise focused sales motions are you also adding to the sales force capacity here.
Yes, so we're constantly focusing on.
Our sales capacity and there isn't a significant increased mind you. We do an acquisition that had the sales force that comes along but really where we.
<unk> been successful like I said I think in our previous calls it. It's the sales culture, everyone sells I always tease, our chief accounting officer at office with an empower deal.
But.
But also as we're coming more and more together.
Each group is helping cross sell for the other group until we're getting the efficiency and productivity out of it more than we're hiring people.
Just.
Putting raw numbers at it we're getting a lot more efficient and productive with it as well.
Great. Thank you.
Thank you Steven.
Thank you. Our next question is coming from the line of Kevin Kaczmarek with Zelman and Associates. Please proceed with your questions.
Hey, guys.
You asked about the impact of overall inflation on revenue can you just remind us of some of the details on the cost of living or inflation component on the long term contracts, particularly on MSP I think you've mentioned the pay to a customized inflation index in the past, but can you give us a sense of the contribution to scheduled revenue increases.
The current quarter say versus a year ago.
From the Cola adjustments.
Sure, it's about 1% revenue growth for the total company in any given quarter and the way that it is generally calculated as yes, its an index, but it's a it's a.
It's a two year average and so.
We do them all at the same time each year. So it's January each year and so we do it for all of our clients at the same time and it's it's a trailing average of the prior 24 months and so we wouldn't see what's happening right now we wouldn't necessarily see a significant affect as you look to next year, but as it averages in we would see that that weighted in but given where.
<unk> the floor is on annual price escalators.
I'm not sure that's going to be some.
That you'll necessarily notice in our results because hopefully we're in what is a transitory period, but we'll see what that ultimately, yes, but the averaging and as what we pushed the benefit out of it.
Okay. So its applied in January and then would that be immediately you know impac.
The impact to like on a run rate revenue from each client then if it did move meaningfully.
Yes, yes.
Yes.
Alright, everything else I Oh, my other questions have been answered already so thanks a lot.
Thanks, Kevin.
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 very pleased once again with our outstanding results I'd like to thank our clients for their trusted and strong partnership and my colleagues for their focus on providing superior support to our clients and one another.
Thank you for joining us on the call and your interest in Black Knight enjoy the rest of your day.
This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Okay.