Q1 2022 Black Knight Inc Earnings Call

Greetings and welcome to Black Knight's first quarter 2022 earnings conference call.

At this time, all participants are in listen only mode.

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 and.

I'd now like to turn the conference over to your host Stephen at Christmas.

Senior Vice President of Investor Relations. Please go ahead, Sir Thanks, Good morning, everyone and thank you for joining us for the Black Knight first quarter 2022 earnings Conference call. Joining me today is chairman and Chief Executive Officer, Anthony Jabbour, and Chief Financial Officer Kirk Larsen.

What's released yesterday in the press release and supplemental slide presentation have been posted to our website.

This conference call is being recorded and will later be made available on our website. This call will include statements related to the expected future results of our company and are therefore forward looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward looking statements are subject to you are describing.

Earnings release Form 10-K, and other SEC filings.

Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation.

This call will be available for replay via webcast through Black Knight's Investor Relations website at Investor Day at Black Knight E. Dot Com I will now turn over the call to Anthony.

Thank you Steve Good morning, everyone and thank you for joining us for our first quarter earnings call.

Hey, I'm going to discuss highlights from the first quarter of the year as well as the exciting announcement, we made on Wednesday.

We had a strong first quarter during which we delivered organic revenue growth of 9%, which is at the high end of our long term range.

Adjusted EBITA growth was nine 5% and adjusted EPS growth was 12, 5%.

Importantly, we continue to see positive momentum across each of our businesses.

Before I share how we achieved these strong results I'm going to discuss the planned acquisition of Black Knight by Intercontinental exchange for $85 per share through a mix of cash and ice common stock.

The price represents a 43% premium to our closing price on April 4th the day before at the Bloomberg article regarding rumors of a potential transaction.

The client focused strategy that we've been executing against to innovate integrate and operate with a sense of urgency is working.

The result has been exceptional performance by any metric.

Well, we have been delivering consistently strong results our stock has not reflected that performance. So it's not surprising that sophisticated companies that have a deep understanding of our industry like ice realize the value in black Knight and are interested in acquiring a great company.

Both companies are on a mission to help transform the mortgage industry as.

As we said in the press release. The addition of Black Knight's innovative technology solutions real estate and mortgage related data assets and analytics and our impressive team of mortgage and technology professionals, both complements and strengthens ice is rapidly growing mortgage technology business.

This combination will enable us to deliver significant benefits to our clients and the end consumer by improving and streamlining the process of finding a home as well as obtaining and managing alone.

It's still early days in the process. The next steps are for Black Knight shareholders to approve the transaction for both companies to obtain the necessary regulatory approvals.

Information about the transaction can be found in our <unk> filings with the SEC, including the registration statement on form S. Four that ice will file with the SEC related to the transaction when it becomes available.

Next I'm going to share some highlights from the first quarter.

As interest rates increase lenders are shifting their focus to finding ways to improve their operational efficiency. The lenders, we speak to understand that reducing costs and operating at a more efficient level is critical right now.

Focus on leveraging technology to improve efficiency and reduce cost as one of the many reasons. We signed 10, new empower clients 38, new deals for our product pricing and eligibility engine and 58 clients to our loan catcher broker specific allo S. All in the first quarter.

We also continue to see success in selling solutions that can augment any mortgage loan origination system, such as our expedite close and sure fire marketing automation offerings.

In servicing software, we signed three new MSP deals and three new clients to servicing digital in the first quarter, which means 80 clients have signed up to use this leading edge digital platform.

Last month, we held our 39th annual client conference more than 500 people participated in the conference to discuss the current mortgage environment learned about how our solutions can help them gain new clients retain existing clients.

Operating more efficiently and manage risk.

The conference also gave us an opportunity to share our roadmaps for the solutions. We are currently developing to help reduce their operational costs and better serve their customers.

The feedback from our clients has been overwhelmingly positive they're excited about the pace at which we're delivering new innovations and appreciate our focus on them and their business.

The strong sales momentum as a result of our ability to deliver innovative solutions that help our clients accomplish their goals.

That's an example, where we're delivering even more digital capabilities to help servicers better serve their customers further enhancing our collections functionality.

Bringing sure fire and to our servicing operations and developing solutions with our API first strategy to enable further integration of our solutions.

We're also creating a content like which will be hosted in the cloud and where we will store servicing data, which will provide us and our clients are consistent way to reference and use data.

This content like who will give us the foundation needed to leverage more of our innovative technologies like artificial intelligence to create greater efficiencies for servicers.

For our lender clients, we recently launched a significantly enhanced empower L O S to better support correspondent lending.

Like to think U S banks for working with us to develop the state of the art platform.

This enhanced capability provides a dynamic and automated workflows to drive a more efficient loan buying process and uses artificial intelligence and digital functionality to deliver capabilities for both the investor and the seller.

The L. O S. Also supports document classification data extraction and client specific rule sets, eliminating most of the stair and compare work done today.

It is fully integrated with our cloud native seller digital interface, which sellers used to easily register lock and deliver loans to empower.

This integration creates a streamline experience when selling loans to aggregators.

In summary, we had a strong first quarter and we're seeing the positive results of our dedicated focus on delivering powerful solutions through innovation and integration and providing superior client support.

Thank you for your time today I will now turn the call over to Kirk.

Thanks, Anthony and good morning, everyone I'll now take you through the details for the first quarter in light of the proposed transaction with Intercontinental exchange.

No longer be providing guidance for 2022.

Turning to slide three on a GAAP basis revenues for the first quarter were $387 million nucleus of 11% compared to the prior year quarter.

Operating income was $80 million, an increase of 18% operating margin was 27% compared to 19, 4%.

Net earnings attributable to Black Knight were $365 million compared to $54 million diluted EPS was $2 35 compared to 35 cents.

Net earnings margin was 93, 5% compared to 13%.

The current quarter GAAP results include a gain of $305 million after tax or $1 96 per diluted share that was recognized as a part of the exchange of shares of Dun and Bradstreet common stock as a part of the consideration for acquiring the remaining 40% interest in OSM Blue Holdco and a $14 million discrete income tax benefit related to the create.

Of a deferred tax asset as a result of a reorganization of certain wholly owned subsidiaries within the alcohol Blue partnership investment structure.

Turning to slide four I'll now discuss our adjusted results for the first quarter.

Organic revenue growth was 9%, which included a headwind of $7 million from lower origination volumes in.

In the quarter revenue sensitive to origination volumes were down approximately 22% versus total origination volume being down 37 per cent per the MBA.

Those revenues now represent a little over 6% of our consolidated revenues.

Offsetting the headwind from lower origination volumes with a tailwind of $8 million associated with higher foreclosure related revenues.

EBITDA was $195 million, an increase of nine 5% and adjusted EBITDA margin was 49, 2% compared to 49, 8%.

Adjusted operating income was $152 million, an increase of 9% and adjusted operating margin was 39, 2% compared to 39, 8% adjusted.

Adjusted net earnings was $97 million, an increase of 11%.

Adjusted EPS was <unk> 63, an increase of 12, 5%.

Turning now to slide five I'll discuss our software solutions segment results.

In the first quarter revenues for the software solutions segment increased 12% to $331 million organic revenue growth was 10%.

Our servicing software solutions revenues increased by 10% the growth was driven primarily by higher foreclosure related revenues new clients higher usage based revenues on MSP and revenue from new innovative solutions.

In origination software solutions revenues increased 16% and organic revenue growth was 10% driven primarily by growth from new clients and the network effect in optimal blue that were partially offset by the effect of lower origination volumes, which was a headwind of approximately $4 million.

EBITDA for our software solutions segment increased 10% to $188 million and EBITDA margin was 56, 9% compared to 57, 8%.

Operating income increased 10% to $153 million and operating margin was 46, 3% compared to 47, 2%.

Turning to slide six.

First quarter revenues for the data and analytics segment increased 5% to $56 $5 million organic revenue growth was two 5% primarily driven by strong sales execution and revenue from new innovative solutions that were partially offset by the effect of lower origination volumes, which was a headwind of approximately $3 million and the previously disclosed reduction in scope.

Of two multiyear data deals.

EBITDA decreased 4% to $19 million and EBITDA margin was 33, 6% compared to 36, 5%.

Operating income decreased 4% to $15 million and operating margin was 26, 9% compared to 29, 5%.

Adjusted EBITDA for the corporate segment in the first quarter was a loss of $17 million, which was effectively flat with the prior year quarter.

Turning to slide seven I'll walk through our balance sheet highlights at the end of March with cash and cash equivalents of $28 million total debt principal as of March 31 was approximately $2 $7 billion.

We had revolver capacity of $399 million and our leverage ratio was three seven times on a net basis.

Following the acquisition of the remaining interest in optimal blue and which we use Dun <unk> bradstreet common stock as part of the consideration we own $18 5 million shares of Dun <unk> Bradstreet.

That concludes my remarks.

Thank you Kirk.

When I joined the company, we started on a journey to deliver innovative solutions at an accelerated pace.

We integrate our offerings across the mortgage loan lifecycle to help transform our industry.

And as you've heard me say, we're committed to doing all of this with a sense of urgency.

This journey has been very successful.

We believe the combination with ice is the right next step in our journey for all of our stakeholders, including our clients employees consumers and shareholders.

While we work through the next steps of the transaction, we are committed to staying focused and not allowing any distractions to hinder our ability to move forward.

I'd like to thank our clients for their strong partnership and my Black Knight colleagues for their exceptional efforts and dedication to delivering innovative solutions and superior client support.

Thank you for joining us on the call today enjoy the rest of your day.

Thank you very much listen gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

Sure.

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