Q4 2021 Black Knight Inc Earnings Call
Yeah.
Greetings and welcome to Black Knight fourth quarter, and full year 2021 earnings conference calls.
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Investor Relations, thank you and over to yourself.
Thanks, Good morning, everyone and thank you for joining us for the Black Knight fourth quarter 2021 earnings Conference call.
And me today is chairman and Chief Executive Officer, Anthony Jabbour.
Yeah, Hey, Kashi Chief Financial Officer, Kirk Larsen our results released this morning, and the press release and supplemental slide presentation posted to our website.
This conference call is being recorded later be made available on our website.
Called Walker statements related to the expected future results of our company and are therefore forward looking statements are.
Our actual results may differ materially from our projections due to a number of risks and uncertainties the.
The risks and uncertainties. The forward looking statements are subject to are described in our earnings release.
10-K, and other SEC filings.
These remarks will also include references to non-GAAP financial measures.
All information, including reconciliations between non-GAAP and it goes away.
The GAAP financial information provided in the press release supplemental slide presentation.
This call will be available for replay via webcast through Black Knight's Investor Relations website at Investor <unk> Nike Com.
I'll now turn over the call date.
Thank you Steve Good morning, everyone and thank you for joining us for our fourth quarter earnings call.
Today, I'm going to discuss highlights from 2021, and our plans for 2022 as well as our announcement this morning.
I'm very proud of power company performed in 2020 , one and how we remain focused on the health and safety of our employees.
So according to our client and executed exceptionally well against our strategic initiatives to drive long term value for all of our stakeholders.
From a financial perspective fourth quarter with another outstanding quarter that closed out an outstanding year.
Gannett growth with nearly 11%.
Adjusted EBITDA grew 12% and adjusted EPS grew 10%.
From a sales perspective, 2021 with a record year in the fourth quarter was the highest of the year.
I'll now provide an update on the performance of each of our businesses beginning with our industry, leading servicing software business.
We are laser focused on our client relationships and enjoying exceptionally high client retention with only two competitive losses since 2013.
In the fourth quarter, we signed one of those five for multiyear MSP relationship and look forward to a long future together.
We also signed three additional client MSP in the fourth quarter.
For the full year, we signed a total of 16, new MSP client, which is the highest number of clients signed on record and almost double the number of new clients signed in 2020.
These clients along with other implementations in process, well add more than 1 million loans MSP by the end of 2023.
Our ability to sign new MSP clients, that's what they clearly demonstrate the value and the comprehensive platform and our ability to capitalize on the opportunities available to us.
I'm proud of how hard we work to deepen our relationships with our existing clients as well as attracting funds.
The value our clients place on innovation can be seen in the adoption rate of the nexgen product Black Knight has delivered over the past few years.
Servicing digital customer service digital were developed with a cloud first approach.
Loss mitigation and claim leverage our advanced API strategy, allowing us to deliver innovative solutions to market quickly in response to our clients' biggest pain point.
When we sell MSP from new clients or renew existing client contracts, we bundle our new innovative technology that helps service should grow revenue improve margin and support regulatory compliance.
In fact, we have more than doubled the number of solution bundle to MSP, new client sales compared to six years ago.
We also cross sell our new innovative technology to existing MSP clients.
Specifically in 2020 , one we signed 37, New Jersey it'll be owed.
20, new loss mitigation.
15 deal for a next generation customer service solution and seven deals for a claim solution.
Our trusted position in the mortgage industry.
Deep customer relationships, we have earned.
Our extensive industry knowledge.
Our agile product delivery practices allowed us to respond with urgency industry changes like the pandemic and deliver meaningful solution at the right time.
We deliberately continued to improve forbearance tools for borrowers through servicing digital while enhancing an already robust loss mitigation solution for our clients.
But even more value. We also integrated servicing fees at all without collateral analytics, maybe Ann and I will.
Optimal Blue E E.
Last quarter I mentioned that we were integrating with an insurance marketplace to give our clients customers the ability to select insurance policy through servicing digital.
We've completed this integration ahead of schedule.
We've also enabled connections the payment providers. So customers can use alternative payment methods like Apple pay Google pay and debit cards to make real time mortgage payments.
The integrations are part of our strategy to allow our clients to provide their customers the ability to manage anything related to their call them through servicing digital and improve the customer experience.
And you can see from the examples I just provided we deliver the innovative services and digital platform.
To identify ways to expand the solutions available to our clients that will help them better serve their customers.
We're also developing new capability for the recently acquired sure fire marketing automation platform that was originally built to serve the origination market.
The health services provide better customer service and reduce call volumes.
As an example, that's correct statements are mailed once an Astro analysis was performed on the loan.
Servicers received more inbound inquiries from these statement than they do any other single events throughout the year.
We are leveraging share buyer to create and share personalized explanatory videos to servicing digital to help reduce the call volume.
We will be offering similar capability.
Other high call volume topics, such as expanding private mortgage insurance and when it can be removed.
The potential benefits of a refi, which will also include a link to servicing digital supply for a refi.
The valuable additions, which are designed to give our clients the tools they need to better serve their customers will be available in the second quarter. They are just a few examples of the endless ways, we can integrate our significant capability.
I'll have more client problem.
Next I'm going to provide an update on our origination software business, where we continue to see significant momentum.
In the fourth quarter, we signed 10, new empower deal, including signing a top 25 non bank originator, meaning.
<unk> top 25 originators, adding their wholesale channel.
For the full year, we signed a total of 30 empower con which is at the high end of the expectations, we shared last year and the most new clients signed in a single year.
Based on our strong pipeline and sales momentum, we expect to sign more clients in 'twenty two than we did last year.
In 2021, we also signed 44 new product pricing.
Or P. P E deals in the fourth quarter.
Wondered and 89 deals for the year 2021.
Well hedging deal in the fourth quarter and 39 for the year.
18, new Ava deal in 'twenty, 'twenty, one and 88 deals for a piece of that solution.
Nearly half of our empower Linda there were existing optimal blue E. P E client.
Additionally, we bundled the optimal blue PPE nearly all of our empower sales, which illustrates the bidirectional cross sell benefits.
This is one example of how bringing optimal blue to the Black Knight ecosystem continues to deliver strong results.
When we signed a new empower deal we bundle additional solution that help lenders improve their ability to serve customers mitigate risks, we generate new lead.
In fact over the past six years, we have increased the number of solutions bundle and the power sale by nearly five times.
As an example, because of the investments we have made in haste, but vendors are realizing increased efficiency from this robust technology, which continues to see increased adoption by our lender clients.
Lenders are taking advantage of these machine learning technology, because they can assist with tasks such a document classification and data extraction that we used in our underwriting solutions.
There are also integrated with our advanced point of sale and the complementary digital solution.
Allows loan officers to see where their customers are in the application process.
In addition to serving the retail and correspondent market.
Focus on delivering superior solutions for mortgage brokers.
Last September we introduced loan catcher cloud based L. O S platform designed specifically for mortgage brokers, which we acquired from next spring last March.
Since launching the solution, we have signed 74 clients, including some early 2022 wins.
And anticipate building on this success throughout the year.
This new solution integrated with their loan sector PPE, which is also designed specifically for brokers.
This growing segment of the power of a black Knight system that is tailored to their specific needs.
We're certainly pleased with the pace of integration, we delivered for our clients in 2021.
To recap, we integrated empower with their optimal Blue C P.
We integrated the recently acquired surefire platform with loan catcher empower that our capture solution.
We also integrated capture with their optimal blue PPE, which enables capture to generate even more accurate for specific pricing scenarios using the lenders current pricing and the most up to date market and margin structure.
Of course, these customized pricing lockers can also deferred servicing digital and refi offers to our clients customers further demonstrating the value of our integrated solutions.
Moving onto our data and analytics business. This business saw consistently strong sales.
2020 one.
Continued strong demand for our rapid analytics platform or rapid.
Recent signings include one of the world's largest investment companies, who are using optimal blue ray loss data.
Nick batch data from a multitude of black Knight data available umbrella.
The proprietary data and helped drive their asset management strategy.
Since recently completing the integration of both the Aqua Blue data and the MBS data, we've seen increased interest in rent.
The ultimate move data allows lenders to receive real time pricing feedback that our product and geographic level.
This is key because loan offer should reach out to their lenders when they feel pricing too high which limits loan officers ability to compete.
The consolidation of the MBS data into rat and the ability to view the data both the loan level and a pool level of secondary marketing team make better informed decisions.
This data also allows them model conditional prepayment rates and identify their own performance as compared to the overall GSE pool.
We continue to develop new analytics and offering leverage both the data within our data and analytics business line as well as data from other solutions across the company.
Before I close I want to discuss the announcement, we made earlier this morning.
We have reached an agreement with can I hold them and Thomas H Lee partners, our co investors in optimal blue by their ownership interests in optimal blue.
Transaction will close today, after which we will own 100% of optimal blue.
When we and our co investors acquired optimal blue in 2020.
Your expectations for how the company would perform.
We can build on that strong performance by tightly integrating their solutions into the black Knight ecosystem because of potential cross sell these solutions to our client base.
Our ability to integrate and sell their solution is that a high expectations, both from a financial and a timing perspective.
We're looking forward to building on this strong foundation.
Coming years.
But the what the values are at Dun <unk> bradstreet investment more than doubling.
We are taking part of those games and investing them in this transaction, which is strategically important black thing.
Additionally, we announced this morning that Blackstone Board of Directors has appointed me executive Chairman for the company.
So in the Kashi 35 year veteran of the company and President since 2017 has been appointed CEO .
Additionally, Kirk Larsen has been appointed President and CFO .
Kurt joined the company and CFO in 2014 and black.
Black Knight through its IPO in 2015.
I'm very confident in these promotions, which will take effect in that.
I'm proud of what we've accomplished in the past four years and I look forward to continuing to work with a skilled executive team and my talented Black Knight colleagues to continue to deliver even greater success in the future.
In summary, 2021 was an outstanding year by any measure.
As we move into 2022 will build on the significant momentum we have created by continuing to execute on our strategic initiatives to drive organic growth through winning new clients delivering innovative products at an accelerated pace.
Selling our solution to existing clients.
We will continue to integrate our recent acquisition and leverage those capabilities wherever we can across the black Knight ecosystem.
As always we will remain focused on providing exceptional support to our clients at all times.
And then I'll turn it over to Kurt to go through the details of the financials.
Thanks, Anthony and good morning, everyone. As you heard from Anthony we had a great year in 2021 were very excited as we look ahead to 2022 with that said I'll take you through the details for the fourth quarter and full year 2021, and our outlook for 2022.
Turning to slide three on a GAAP basis revenues for the fourth quarter were $386 million, an increase of 13% compared to prior year quarter operating income was $83 million an increase of 32% operating margin was 21, 5% compared to 18, 3%.
Net earnings attributable to Black Knight were $61 million, an increase of 29% diluted earnings per share was 39 cents, an increase of 30% and net earnings margin was 14, 5% compared to 12, 3%.
Now moving on to the full year on a GAAP basis full year revenues were $1 $475 million, an increase of 19% compared to the prior year operating income was $303 million, an increase of 14% operating margin was 25% compared to 21, 5%.
Net earnings attributable to Black Knight were $208 million compared to $264 million and diluted EPS was $1.33 compared to $1 73.
Net earnings margin was 12, 2% compared to 19, 8%.
Turning to slide four I'll now discuss our adjusted results for the fourth quarter and full year 2021 for.
For the fourth quarter organic revenue growth was 11%, which included a modest headwind of $3 million or less than one percentage point from lower origination volume in.
In the quarter revenue insensitive to origination volumes were down approximately 9% versus total origination volume being down 34% for the NDA.
Those revenues now represent only 8% of our consolidated revenue.
Just the EBITDA was $188 million, an increase of 12% and adjusted EBITDA margin was 48, 7% compared to 49%.
Adjusted operating income was $150 million, an increase of 11% and adjusted operating margin was 38, 8% compared to 39, 3%.
Net earnings was $102 million, an increase of 9% and adjusted earnings per share was <unk> 66, an increase of 10%.
Now moving to the full year organic revenue growth was 10% adjust.
Adjusted EBITDA was $724 million, an increase of 19% adjusted EBITDA margin was 49, 1% compared to 49, 2%.
Adjusted operating income was $578 million, an increase of 22% adjusted operating margin was 39, 2% compared to 38, 3%.
Adjusted net earnings of $371 $5 million, a decrease of 15% and adjusted earnings per share was $2.38 an increase of 13%.
Turning now to slide five I'll discuss our software solutions segment results.
In the fourth quarter revenues for the software solutions segment increased 13% to $329 million organic revenue growth was 11%.
Our servicing software solutions revenues increased by 7% the growth was driven primarily by higher usage based revenues on MSP revenue from new innovative solution and new clients.
In origination software solutions revenues increased 28% organic revenue growth was 20% driven primarily by growth from new clients and the network effect in optimal blue.
Loan origination volume was only a headwind of one $5 million EBITDA.
EBITDA for our software solutions segment increased 11% to $185 $5 million and EBITDA margin was 56, 3% compared to 57, 5%.
Operating income increased 10% to $181 million and operating margin was 46.0 per cent compared to 47, 3%.
Full year 2021 revenues increased 20% to $1 $5 billion organic revenue growth of 10%.
EBITDA increased 18% to $714 million and operating income increased 20% to $583 million.
EBITDA margin was 57, 1% compared to 58, 1% and operating margin was 46, 6% compared to 46, 5%.
Turning to slide six fourth quarter revenues for the data and analytics segment increased 11% to $57 million.
Organic growth was 8%, primarily driven by strong sales execution and revenue from new innovative solution is.
Second largest actually bonds was only a headwind of approximately $1 $5 million.
EBITDA increased 19% to $19 million and EBITDA margin was 33% compared to 38%.
Operating income increased 21% to $15 million and operating margin was 25, 8% compared to 23, 6%.
Full year 2021 revenues increased 13% to $225 million organic revenue growth was 10%.
EBITDA increased 24% to $80 million and operating income increased 30% to $65 million.
EBITDA margin was 35, 6% compared to 32, 6% and operating margin was 28, 7% compared to 25%.
Adjusted EBITDA for the corporate segment in the fourth quarter was a loss of $16 million compared to $15 million in the prior year quarter and $70 million for the full year 2021 $59 million in 2020.
Turning to slide seven I'll walk through our balance sheet highlights at the end of December we had cash and cash equivalents of $77 million.
Total debt principal as of December 31, with $2.450 billion.
All of our capacity of $744 million and a leverage ratio of three two times on a net basis.
Pro forma for the optimal blue transaction announced today, our leverage ratio would be three nine times on a gross basis and three eight times on a net basis as of December 31 2021.
Turning now to slide eight I'll walk through our outlook for 2022, which reflects the effects of the Alpha transaction, we announced this morning.
Revenues are expected to be in the range of $1.593 billion to $1.612 billion, representing reported growth of approximately 8% to 9% and organic growth of 7% to 8%.
Adjusted EBITDA is expected to be in the range of $786 million to $803 million and adjusted earnings per share is expected in the range of $2 63 to $2.72.
Additional modeling details underlying our outlook are as follows.
Planning for a $30 million tailwind from higher foreclosure volumes with the exploration of the moratorium and other measures that precluded multiple closer start as it relates to origination volume sensitive revenues Youre planning for an approximately $30 million headwind from lower origination volume with expected growth in purchase volumes being more than offset by expected lower refinance volumes.
As we proceed through the year, we will provide you with updates on what we are assuming for both foreclosure and origination related revenue.
As far as growth expectations for the businesses, we're planning for software solutions to deliver low double digit revenue growth, reflecting servicing software revenue growth of high single digits, including foreclosure volume tailwind.
Originated software revenue growth of mid teens, including the origination volume headwind.
And data and analytics revenue is down a few percent driven by origination volume headwinds as well as the renewal of two data deals at lower annual rates due to a reduction in scope of the data providers.
A combined headwind from those renewals this year was approximately $7 million.
On the expense side, we are expecting increases in sales and marketing and travel and entertainment expenses as a result of a return to more normal operating environment and higher personnel expenses from wage inflation above our typical annual increases.
In total we expect approximately $12 million of incremental expenses about 2021 levels related to those items.
As far as the in year benefit from the optimal Blue transaction. It will result in the elimination of Noncontrolling interest going forward, partially offset by modestly higher interest expense and a slightly higher tax rate and that benefit is an additional 11 of adjusted earnings per share in 2022.
As far as other inputs to your model, we expect interest expense of $89 million to $92 million depreciation and amortization expense of approximately $160 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting.
The increase from 2021 is primarily due to the accelerated pace of innovative new products and functionality going into production in late 2021 and forecasted for this year as well as higher emissions from a record sales year.
Earnings attributable to Noncontrolling interest is expected to be approximately $3 million. This relates to the 40% of optimal blue that we didn't own from January one this year through today.
As mentioned earlier, we will not have non controlling interest going forward.
We expect an adjusted effective tax rate of approximately 23% and full year diluted weighted average shares outstanding of approximately $156 million.
Although we do not provide quarterly guidance I want to provide you with some color as to how we expect to progress through the year. As a reminder, we plan at the midpoint of our guidance range.
We expect revenues to be down slightly from the fourth quarter of 2021 in the first quarter of 2022, and then grow throughout the rest of 2022, resulting in relatively steady year over yourself as the year progresses.
We expect adjusted EBITDA margin declined slightly from the fourth quarter of 2021 to the first quarter of 2022 due to normal seasonality and then expect margins to expand sequentially in the second quarter and third quarter with a slight sequential decline in the fourth quarter due to typical seasonality.
My remarks, I'll now turn the call over to the operator for Q&A.
Thank you very much.
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One moment, please while we poll for questions.
As a reminder, we ask that you limit to one question and one follow up.
If you have a first question from the line of John Campbell.
With Stephens Inc. Please go ahead.
Hey, guys good morning, and Anthony Congrats on the great work over the last few years and Youre kind of instrumental role in helping us still a greater sense of innovation with urgency I think because the way you put it for like Youre definitely leaving the organization better than you found it. So congrats there and then Joe Congrats on much deserved promotion I look forward to working more closely with you.
Thank you. Thank you John John I'm, not leaving them transition done I'm used to these guys don't get rid of me that easily so that's right.
That's right.
I wanted to dive into the MSP pipeline for a second I think in <unk> you guys called out maybe 2 million kind of MSP loans coming over the next 18 months I think last quarter that was closer to $2 1 million, but I think that included caliber which has obviously already lie but Anthony I think you called out 1 million loans through 2023, I'm just kind of looking for any kind of direction you guys can provide maybe on the <unk>.
Phasing of that implementation scheduled.
For starters, if you guys can just call out what you're exiting <unk> at how MSP loan count and then secondly, maybe a sense for how much of that 1 million lands in 'twenty two versus 'twenty three.
John I'll take that.
Yeah, the loan count I don't have handy actually it's a $36 6 million total loans are just just slightly under that as of the end of December as far as the million loans coming on do you think about what's backing that up it's the the wins over the past two years right. It's the 16, we had this past year and then nice tail of some of those as well.
Well they'll come and they'll come on I'd say pretty pretty evenly.
Look over the next year plus.
So there are there's a couple that are on the larger side relative to some others, but there isn't there aren't any better as chunky as caliber as they come on so they'll come on pretty smoothly and.
And frankly I'd have to say, they're all going very well.
A finely tuned machine as we implement our MSP. So so we have a lot of delighted customers that'll be on the platform off sooner versus later.
Okay, that's great and then on optimal blue.
Congrats on the deal there and it sounds like it cleans up the story a lot you guys, obviously get some recognition for their your dnb shares now recognizing that value, but I'm curious about how youre thinking about this for this year I think it grew 25 or so percent last year, you talked to kind of 20% over time, but curious how youre thinking about ocwen blue with mortgage headwinds.
This year and then you've also talked to you.
We're expecting the underlying margin of optimal blue to kind of head towards the company average are you still feeling like that's that's one course.
Yeah, absolutely John from a growth perspective in 2022, and it'll be a hair under that 20% because of a little bit of the mortgage headwind as you think about how the mortgage headwind is going to roll out first of all as you think about it from a company perspective, it's really getting smaller and smaller as we look at that it was you know those revenues for the total company or <unk>.
8% of the total and there'll be 6% of the total body that we've looked at the end of the year, but that said there is a little bit of that.
In optimal blue and so I think it's you know this year, it's likely a high teens growth.
Frankly, the sales in 2021 were fantastic and gives us a lot of confidence in the ability to grow at those levels into 2020, but there is that that modest headwind primarily in the hedging side of the business, but we are it goes without saying, we're thrilled to be able to own 100% of Aqua blue at this time very pleased.
That our partners, we're willing to do transact prior to the the three year, Mark where the where the call rights would've been upwards and operative.
And we just see that there's so much that we can do it without the wood, it's been a great year and a half so far we think the outlook for that business is terrific.
And from a margin perspective, sorry to answer that our margins are expanding very nicely there.
They are they were arguably ahead of where we were expecting them to be coming out of the gate.
This 2022 are probably will like the rest of the company see some sales and marketing and travel and entertainment expenses kind of reverting back to you on that one but as we go through that we'll see margin expansion, but maybe not at the same rate that it had been the last couple of years, but then we still see the margins are being able to expand significantly in that.
Business, because it's just it's such an efficient operation that we have there with it with a with a very with a great SaaS model and just not a lot of variable expenses as we grow so a lot of continued to see a lot of room for margins to expand there.
It's all great to hear I'm not sure what else you guys can be doing so great work. Thanks.
Thank you John .
Yeah.
Thank you we have next question from the line up Andrew Jeffrey with tourists Securities. Please go ahead.
Hi, Good morning, guys. Appreciate you taking the time.
It's good to see at all.
Echo the comments good to see you, bringing optimal blue and I Wonder Anthony you you mentioned a lot of cross sell across the business.
Blue in particular.
Can you talk about perhaps what the company can do now that it controls the optimal blue entirely that perhaps you couldn't have done before and maybe how far along the yield or pricing or cross sell her. However, you want to think about it sort.
Sort of how far along that path.
Company is and what the additional opportunity is in terms of cross selling and evolving our offerings.
Yes.
Sure No I appreciate that Andrew Thank you.
With us on the Blue in terms of what we can do now that we couldn't I wouldn't say there is anything that we can do that we couldn't prior or that we weren't.
It certainly simplifies it.
Completely by them being wholly owned so internally it simplifies it for us simplifies. It I think just you know externally as well for some of our investors and maybe clients, but we've been acting with a tremendous sense of urgency around the integration with the optimal blue and and like I said you know.
We're very pleased with the progress that we've made with it.
Hey.
From a cross sell perspective, and and where we are on that journey I think we're early days and again, where the market. You know I think may try and put us into a box and look at Ob and cross sells of that into.
Our origination business only we look at integration across the whole company and that's what's making a difference for us and so we've seen increases in sales in a wrap product and data and analytics business because it now has data from optimal blue that we brought into it its a new catalyst. So we're constantly looking at catalysts.
We can create to drive value for our clients.
And so I'd say overall, it's early days for us in terms of all the things that we can cross sell going to market together.
You know like I said in my prepared remarks signed four empower clients already to MSP as well for that matter.
And where are ahead of where we were last year at this time. So the the engines producing the strategy is working and we're going to continue to look for ways of cross selling every capability we have.
Unique ways driving value for our clients.
Okay. Thank you appreciate that Kirk could you just drilling for a second on DNA and I think you'd mentioned, perhaps some some some pricing changes there or pricing headwinds or is it really sounds like the software segments hitting on all cylinders.
Any thoughts on sort of the transitory nature of that and what you might expect longer term from the DNI segment.
Yeah, absolutely thanks for asking Andrew It goes without saying the data and analytics segment has had a has had a terrific run the last couple of years and the momentum that we've seen there frankly is continuing and so I'll unpack the expectations for 2022, just kind of highlight that.
The the expectation of a modest decline in that business really has two components. The first is the origination volume headwinds, which if they come through as we are planning that will basically will get to a normalized level of origination volumes.
By the end of 2020 through maybe a little bit of dribble over into 2023, and our view right now is relatively consistent with our with other forecasts you see from the GSE and from the MBA, but by our own analysis, we come up with something similar.
The two deals that you are referencing to be candid when we sign those deals back in 2014, and 15 are their long term strategic deals.
And frankly, we didn't expect them to renew at the time, we expected that those those are clients would actually gather the data themselves.
When the contract term was up and so our long term plans, including those not renewing and then what was found as we got closer to the expiration of those contracts was.
They realize the gathering public records data is really hard it's really hard to do it's really hard to have nationwide coverage really had hard to have very high quality at the levels that we have and so they renewed the deals but at a reduced scope and so it isn't per se a price.
Rice adjustment as much as it was a scope reduction and so we're happy that those deals that haven't have renewed I don't really see other deals like those are going going forward from a perspective of adjusting scope and they're also arent any of that that renew anywhere in the near term and so he's two really are isolated.
From a in their nature and their size and in their in their scope change and so I really we highlighted it for that reason, but if you. If you adjust for those couple of things to say what is the underlying engine of our data and analytics delivering its delivering you know pretty strong mid to high single digits growth as we're planning.
This year very consistent with where our where we had been in the last the last couple of years.
Great color. Thanks.
Thank you.
Thank you we have next question from the line of Ryan Tomasello with K B W. Please go ahead.
Good morning, everyone. Congrats on rounding out the year and cleaning up the story here and also to Anthony on the success under your leadership I guess just on the volume question.
Beyond the direct volume impact from origination volumes to revenue, maybe you could talk about any second derivative impacts.
Across the business from a normalized mortgage market on the one hand, I know you and other players have talked about potential tailwind in technology demand as the industry is less distracted, but on the flip side of that.
Until you know potential.
Non direct impacts from a product demand from declining industry profitability and potentially head count. So just curious how you're thinking through that in terms of the outlook for this year beyond the direct volume sensitive revenues.
Yeah, maybe I'll take that and then Turkey could add on if you want to the.
The first is obviously the mortgage industry is changing you know with rates rising and volumes coming down putting different pressure points.
On lenders and from our perspective, I always think there's an opportunity on where we can help so with the sales success. We've had in empower last year. It was really helping you know what when when the volumes are tremendous.
Our scale and our capability helped our clients ramp up to that volume and now as volumes are going to drop off the efficiencies that we can deliver across a broad range of solutions will help our clients realize more efficiencies and so we see that and that's what we're leaning into right now.
Last year and the year before when volumes were high like I said, we had a tailwind from it helping clients you know capture more of the volume, but also some headwinds from it in terms of the business was so great. Nobody wanted to look sideways or moved from what they were doing even if they were unhappy.
And going forward I think there'll be a mixture of headwinds, but mostly tailwind in terms of how we can help our clients be more efficient.
We've always talked about the $9000 to originate alone.
And that talk went away when the volumes are tremendous because you could see the impact of fixed cost, but that is starting to come back again and everyone's looking more closely at their operations and we really feel confident that we've got a great solution that can help them in that way what I would add to that is a R.
And Anthony his prepared remarks.
Signing more empower clients this year than we did last year.
We signed 30, which was clearly a record and so in 2022, we're expecting to sign more and just to add onto that we've signed four so far this year. So we are we are well on our way to our two leading that target that we set on this call. So we think there's a lot of there's a lot of demand the pipeline is bigger than it's ever been.
And I think that we will we look forward to another very successful year from a sales perspective in 2022.
Great and then last week, we had an announcement from MSP as primary competitor, making additional investments in partnerships and their servicing technology with a top 10 servicer just curious how youre thinking how that might impact the competitive dynamics in the space and maybe on that front.
Highlights some of the.
Recent win rates for MSP over the last year.
Thanks, Brian Yeah look, we don't Jay and Chris really well and I think they're great guys and valued clients or are you get a lot of things with us.
Across our all of our capabilities.
I think part of it you know their renewal to proof point that the economics don't make a lot of sense for our servicer to own their own platform and even for them at their size. They found a way to drive more value.
For themselves with their renewal.
You know what I'd say is more broadly we see new announcements every day since I arrived almost four years ago about some new player that is going to come in and disrupt the change the market and I had just a lot of conviction as our team did that with the assets that we own and the.
The strategy that we have innovation integration and doing it all with urgency.
That is a winning formula and we have seen.
In our financial results in our sales results and our client interactions is resonating it's working and that's what we're going to continue to focus on again, where that is a an announcement of a new system that will be built.
In the coming years.
It's on servicing and we're focusing on the entire continuum in mortgage.
We certainly have a tremendous amount of capability in the cloud or cloud ready and.
And that's.
Obviously, a key element for our innovation and our growth.
Where we're.
More focused on where you hear us talk about is what it is that we're doing and what it is that we're delivering versus where it will be hosted.
And so we've got a lot hosted in the cloud where it makes sense. We you know our focus is.
Innovation, that's client centric and and how we can move our clients along with us as we innovate new products and Thats the part them.
Most proud of how we're doing that's not what we're doing but how we're doing it with our clients youre seeing the sales rates that we have on all of these innovations, we're bringing to market, it's working and so.
We've got a lot of confidence about our feature in this space as well and the stickiness of our servicing clients. It's up it's a hard.
Area two.
You know to move and we've got a lot of investment that we put into our capabilities.
Very deep client relationships. So we feel great about how we're positioned Ryan what I would I'd add to that is look at the sales results for last year, We signed 16, new MSP clients 16, and and to give you a quick update.
We signed two so far this year. So what we are doing is resonating. What we are doing is working and we're going to continue executing that game plan and would expect that we would continue to win.
Thanks for the color guys and good luck Anthony on the transition.
There's just so much right.
Thank you. We have next question from the line of me hit about young with Bank of America. Please go ahead.
Hi, thank.
Thanks for taking my question.
Just wanted to start firstly, congratulations to all three of you actually Anthony Joanne Coke.
And your position.
Thank you go ahead and promotions.
I wanted to ask maybe just to start and I don't mean to quibble about this but look.
Can you just delivered 11% organic growth you're guiding to 7% is what's driving some of that slowdown.
Sure. It's a very it's a very good question and thank you for the congratulations all three of those sincerely appreciate it.
It's really it's really very simple if you look at the 10% or so for 2021, there's a few things as you bridge that to 2022. The first is we have bank of America deal of course appreciate that we at bank of America come on and that that at it you know.
It was a it's a large very large deal and certainly I'd, probably a point or a little bit more to our to our growth rate. So that was a part of it the other part of that when we talked about this throughout 2021 was the elevated levels of what we call MSP usage base volume. So that was as portfolios are moving among clients as we brought on so many new loans.
Some of the usage based revenues.
Were elevated compared to 2020, and we expect them to maintain.
Not grow at the same rate that they were in I'd say the last that's probably another point and then I'd say the last half point.
Bridging from call. It seven five to 10 would be those two data and analytics deals that I discussed in response to Andrew's question. So that really is that bridges that difference and so if you think about that as far as what's what's transitory versus versus not.
Don't expect other data and analytics deals like that.
Type of a headwind and so to have a point that gets you from that seven five to eight which is squarely in the center of our 7% to 9% range and so we feel we feel very good about that.
But that that that's how you bridge from 'twenty, one 'twenty two.
That's very helpful. And then again I don't have it.
Nine.
Higher than your long term guidance very helpful. There.
One just one other question you talked a little bit about it in the last answer.
About the pipeline on the MSP side, but maybe I think in your prepared remarks, you specifically called out the empower pipeline and the growth of just talk a little bit on the MSP side and I was curious if youre seeing any benefits from it feels like that the increased regulatory focus on servicing and plus you have potential uptick in foreclosure was coming.
Coming up are you seeing any benefits from that just talk about the MSP pipeline from here. Thank you.
Yeah, our MSP pipeline is very solid.
So actually what we want to take this one yeah. Thanks, Mike for the question Yeah. The MSP pipeline is extremely solid and then put it into a couple of different categories and to your point, obviously regulatory compliance remains important to all of our customers. So we're seeing a flight towards making certain that our customers are armed with.
The best loss mitigation tools to best workout options, making sure they were complying with all the requirements for a borrower, especially as the moratorium concludes and we start to see the foreclosure starch worked through the pipeline. So that's that is absolutely critically important the other I would say is we're starting to see more.
Sure as origination volumes slow.
We're going to see more servicers want to bring servicing in house and in service to their own loans versus using other third parties in terms of sub servicing so those would be similar drivers that I would say that that we're seeing and then on the last one is retention is critically important and recaptured and so the combination of MSP and our servicing <unk>.
You'll application has served us very well in terms of building a business case as to why you know MSP is the right platform as Kirk said you know we've already signed two new MSP deals this year already and I'm confident we're going to continue to say more.
Thank you.
Thank you we have next question from the line of Manav, but Manav Patnaik from Barclays. Please go ahead.
Thank you good morning, and congratulations to you as well Kirk I was just hoping you could help us with a little bit of free cash flow guidance and you know that.
The cadence at which you can delever from this three nine times, a pro forma level you called out.
Yeah, Great question, so free cash flow looking.
Looking ahead without giving specific guidance.
We always we look to target approximately 100% of adjusted net earnings that that's our goal there can be things timing effects that can that can affect that whether it would be things that were done in the cares act around some deferral of payroll taxes or the tax on the gain on Dun <unk> Bradstreet.
Chairs that will have to pay you know over the course of this year related to stop to the shares that we just just used in the transaction, but we can delever quick that that three nine times does not take into account any proceeds from from further sales of Dun <unk> Bradstreet chairs doesn't take into it it obviously could delever very quickly.
Just based on EBITDA growth as well as using free cash flow and to that end, we will use excess cash flow in the near term to to pay down most of the revolver borrowings related to the deal, but we will be comfortably within our our range of call. It two and a half to three and a half will be comfortably within that range very quickly.
So that that gives us the ability to deploy capital.
In all the ways that we all we've always targeted whether it's internal innovation.
Acquisitions its share repurchase we really have although we have all the levers at our disposal, but we will delever delever quickly.
Got it.
And my second question, you know you have given us a lot of.
Good details here to model, maybe we could you know clean it up with how you're assuming the full closure tailwind.
All of the data suggests that in a very low level to start to just <unk>.
And what you are assuming and how we should think about the progression.
Absolutely. So we we have models the worst we have $30 million in the plan as I mentioned in my prepared remarks that does not assume that we'd get back to 2019 levels, which we think is a reasonable Ah <unk>.
Level two to get to but maybe it's going to take you into 2023 to get there maybe the exit rate. This year is that at those levels.
But we're not assuming that that aggressively and in our plan for this year and so what would it really assumes there's something closer to 60 or 70% of those levels and importantly, we were anxious to see as everyone's very curious on this topic as we exited 2021, when we're very curious to see what what's going to happen in January .
Or is there going to be a burst of activity is there going to be no activity, what what what is going to be what are we going to see and what we've seen so far.
It's actually been relatively steady they're up significantly you know five or six X from what we saw a problem from the month of December and then as a reminder, we are our revenue model is based upon when Wendy the matter gets referred to an attorney primarily when it gets referred to the to the foreclosure time, it's not the.
Formal foreclosure start so it's when the process begins because that's when they start beginning you can use our technology and so we will see we will see revenues in advance of when the formal portfolio start does commence but the activity has been remarkably consistent through the first six weeks of the year and if we were to continue at the levels.
We are right now we'd be in line with our plan actually probably slightly ahead and so you know where we are today, we feel good about where we're where levels are compared to our plan and I think we have to do manav. It is really just provide updates when.
Never we can see you know how things are progressing, but so far it's been steady activity, which is which is comforting from my perspective, it's not a burst that they saw a burst in bus type of situation and but there is volumes that that support what we see for the year and so we're just gonna have to continue to monitor it and provide updates as we progress through the year.
Alright, Thank you very much.
Thank you.
Thank you we have next question from the line of Stephen Sheldon with William Blair. Please go ahead.
Hey, good morning, and I'll Echo my congrats on the leadership transitions.
Thank you I know, you're focusing I know, you're focusing heavily on our cross selling efforts right now, but just given the stickiness of your solutions and I would argue a wider competitive moat given how much the solution set is broad in recent years.
Has it changed your thinking at all about pushing the pedal more on on pricing I think you've historically gotten a little over 1% annual uplift on the pricing side. When would you expect that to change at all as you think about the next few years.
Well, it's a great question, Steven and look are you know we've always said we take the next products.
Sales versus an increase in price.
Because you know obviously, what it does is it's more valuable to us creates a secure a relationship for us to continue to grow from.
Versus just <unk>.
Price increases and.
But what I'd say is you know certainly.
We see.
Pricing will continue to rise, especially this inflationary period now that we're in are our contracts are tied to annual cost of living adjustments and so we will see some benefits from that on the pricing side as well.
But unlike you know.
Some companies out there, we're not looking at growing purely by raising price and not doing anything else for our clients. Our focus is to create lots of capability that really helps our clients to create stickier healthier.
Wider moats and.
And then the price will come along with it our revenue growth and our margin expansion will come along with it.
So long winded way of saying, yes, we will see that but in the context of everything else that we're doing for our clients.
Makes sense, thank you and congrats on the results.
Thank you Steve.
Yeah.
Thank you.
Okay. If you have a crashed it should have a follow up question you May press star one.
We have next question from the line of Surinder <unk> with Jefferies. Please go ahead.
Thank you for taking my questions.
A question about the growth strategy as you think about 2022, and then maybe a little bit longer.
Talk about how much of that might be coming from up selling existing clients versus trying to capture new clients and how maybe we should be thinking about it on a longer term basis.
Yeah, the mix of new clients, which we refer to as sort of platform sales versus cross sell it's a little bit it's probably a little over two thirds two thirds to three quarters are adding new clients. So every time, we add a client onto empower or MSP. It not only brings with it a lot in there.
And the initial bundle because as we brought in so many capabilities, it's almost five X the number of products and empower sale in more than two X and MSP sale, but it gives us that platform to cross sell to and so as we continue to innovate continue to bring new capabilities, you'll add to that but it's it really starts with that initial relationship that that would be.
Frankly, a partnership for a lifetime.
One that we can just continue to add yourself and it brings with it the bulk of the dollars.
But it is the cross sell is critically important we have amazing sales teams that that's what they do.
The account managers and sales folks that manage those existing relationships do a tremendous job, adding adding to those relationships that again become partners for a lifetime.
That's helpful and then a clarification on some of the color on the expenses.
You talked about some of the travel and marketing expenses beginning to return in the year.
How are you thinking about that and maybe perhaps on a longer term basis is the expectation that maybe they should be.
Out longer into 2023, we'd get back to more normalized levels or how.
How should we just kind of think about type dynamic obviously made in a post pandemic world where things are obviously different from an operational perspective.
Yeah as I sit here today, I would say that I would not expect to be on our call a year from now and talking about.
Anything of the magnitude that were about $7 million for example related to travel and entertainment and sales and marketing coming back we're planning to have our our client conference in person that's part of our sales and marketing costs are our salespeople started frankly in the third and fourth quarter going back to conferences lives. So some of this increase some increase we're talking about 'twenty two I didn't mention it in 2020.
The fourth quarter.
That was probably 60 70 basis points of margin that we spent getting back into people traveling and going to two conferences in person. So we started.
So I don't think that that's a there may be a little bit that carries over into 'twenty three but I think this is the bulk of it from a sales and marketing travel and entertainment perspective from a wage inflation perspective.
With me are getting a little granular on all of these things that I really want to help with your with your models and understand the long term. So I. Appreciate you asking this question.
I I don't know what 23 is going to look like from a from a wage inflation perspective in the Grand scheme of things $5 million. I think is is not significant it's important that we came when we started we started early on these things and really realizing how important it is for us to keep our team members to keep that group together to manage our attrition at levels there.
That we think are meaningfully better than where the market is and that's really what drives some of that wage inflation, but I think over time that will it will abate. So I don't think it's certainly as we put together our typical strategic plans and look to the long term maybe there is some that goes into 'twenty three but this is not a long term phenomenon I think on either.
Brian .
That's helpful. And then one other one you gave some good color on the assumptions around a foreclosure volumes can you talk about the <unk>.
A full quantitative assumptions around the mortgage volumes it sounded like your expectations are that towards the end of this year, you'll get back to more normalized levels in mortgage but.
Normalized do you mean like 2019 levels or how should we be thinking about that dynamic.
Very similar to what what the MBA is forecasting so yeah, I think it does get back down to right about those levels.
And I think pretty consistent with where I mean, I think if you looked over the last eight or 10 years.
Specifically looking at refi, where there's where theres a lot of movement I think over the last eight or 10 years. It was $216 billion or so a quarter I think by the end of this year. The MBA is forecasting a 176 billion a quarter. So so maybe it's a little bit below that that longer term average, but but getting back to that I mean, I think another way to think about it is <unk>.
Since the beginning of 2019 cumulatively, we've had a tailwind of about $32 million.
And as we look at it and plan, we basically think that that that's the amount that we will see as.
As that as the market moderates to a more normalized level. That's the headwind, we'll see and we're seeing $30 million of that this year and so within a couple of million Bucks, if anybody can predict volumes that specifically.
I commend them.
But I would say, we're largely bearing the brunt of that decline this year and as we look to next year and maybe there's a there's a little bit but not much. So it's we we rely on our own forecasts.
An amazing set of data scientists that help us with this.
But it ends up being pretty similar to what what are other other third parties that are looking for now importantly, though.
Not expecting we're not expecting to see a decline of that same percent. That's what we're modeling for the market, but we expect to outperform the market based upon our mix of clients and products and frankly, some contractual protections related to minimums that.
You know we'd be down maybe two thirds of that and you saw that in the third quarter and the fourth quarter that we outperformed the origination market. So that's.
That's a very detailed answer to how we're thinking about it but happy to.
Dig further if necessary.
I appreciate the details thank you very much.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Anthony Jabbour for closing remarks.
Over to you so thank you.
Thank you.
In closing, we're very pleased with our outstanding quarterly and full year results I'd like to thank our clients for their trusted and strong partnership and my Black Knight 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.
Thank you very much.
Ladies and gentlemen. This concludes today's conference you may now disconnect. Your lines at this time. Thank you for your participation.
Okay.
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