Q2 2019 Earnings Call
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It is now my pleasure to introduce your host Steve Edgington.
VP of Investor Relations you may begin thanks, good morning, everyone and thank you for joining us for the Black Knight second quarter 2000, Nike Inc. earnings Conference call.
Joining me today are chief Executive Officer, and Leaderboard, and Chief Financial Officer, Kirk Larsen. Our results were released this morning, and the press release and supplemental slide presentation have been posted to our website.
This conference call will create statements related to the expected future results of our company are therefore board what these 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 ethnic deep Alex.
Today's remarks waffle include references to non-GAAP financial measures additional information, including reconciliations between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation.
This conference call will be available for replay via webcast through Black Knights Investor Relations website at Investor <unk> Black Knight Inc. Dot com.
I'll now turn over the call to Anthony.
Thank you, Steve and welcome to the Investor Relations team.
Good morning, everyone and thank you for joining us for our second quarter earnings call.
Overall, the second quarter was another solid quarter.
The core fundamentals of our business remains strong and we continue to execute on our strategy to drive revenue growth by expanding relationships with existing clients, adding new clients and delivering innovative solutions.
We continue to make great progress developing and selling innovative new solutions that are helping our clients gain new customers improved customer retention and operate more efficiently, while also helping them to manage risk.
Since launching servicing digital as part of our digital suite 14 clients, representing more than 25% of the loans on MSP have signed up to use this innovative solution to enhance customer experience and retention.
Of the total six clients signed in the second quarter, including two top 15 Servicers.
Interest and excitement for this product is growing and we continue to enhance the functionality.
For example, we're currently working on an integration with house happy to offer capabilities to simplify a customer's home care and maintenance needs.
Through digital ordering and scheduling of services as well as convenient storage of home related information.
It's an additional feature within servicing digital that will create increased customer engagement and lead to increased customer retention for our clients.
At the end of last year, we introduced the rapid analytics platform or rap.
Which provides data scientists a cloud based analytics line, where they can use black Knight's data assets in conjunction with their own data to create models and analytics to help them drive additional revenue and efficiencies.
Since launching we have signed three clients, including a top five credit Union and we continue to build a strong pipeline.
Another innovative solution currently in development and an example of how we're helping our clients manage risk is our regulatory assist solution.
This tool is integrated within power and performs origination compliance testing against state and federal regulations, well checking for high cost mortgage violations allowable fees and client specific compliance rules.
Based on our preliminary conversations with clients. There is strong demand for this product because it eliminates the need to integrate with another provider.
Finally, let me give you an update on a the artificial intelligence virtual assistant, but the quantifiable example of the value able delivers.
Consulting firm Marketwise advisors performed an independent study with the top 50 lender who is using Ava.
They found that using Eva skills for adjusted income asset insurance and file intake could decrease the cost of origination by up to $437 per alone at this lender.
Market why said that the anticipated cost savings will grow significantly as Dave has machine learning enhances to include more skill sets.
Clients have shown a lot of interest in using Eva to help lower the origination costs, which have significantly increased over the past few years I look forward to continuing to update you on Avis progress.
From a new sales perspective, we had a very solid second quarter and total new sales contract value is tracking to our plan through the first half of the year.
In our origination software business. We had continued success in the second quarter, selling our mpower and empowering our solutions.
On our first quarter call I talked about the development of enhance correspondent functionality and then power.
Those efforts have paid off as we have established a new origination relationship with U.S. bank to use empower to manage loans purchase through its correspondent channel.
Newest bank is also going to use Eva for document classification data extraction and exception management.
We believe Eva was a key factor in U.S. paying selection up in power.
I also talked about our expectations for accelerating sales of empower now.
To that end, we signed three and power now deals in the second quarter, which brings us to four new clients in the first half of the year.
I continue to be confident that we can sign eight to 12, new and power now clients this year.
I'm also excited to announce that our top 20, Lunda recently renewed their and power contract.
This lender was operating in a self hosted environment and with the renewal made the decision to move to the Black Knight hosted environment.
When we host the software our clients benefit from significant economies of scale timely enhancements and the ability to focus their employees on the functions that will drive revenue for their businesses.
And servicing software, we continue to have success, adding clients to our industry, leading MSP platform.
In the second quarter to mortgage companies try it financial services and Fidelity Bank selected MSP for loan servicing.
And we have a strong new sales pipeline, including Servicers of all sizes.
Fidelity Bank is also implementing servicing digital empower our default suite of solutions as well as our actionable intelligence platform.
This is another example of the exponentially greater value clients can realize when using multiple black Knight products.
We continue to make progress with implementations in June we announced that more than 1 million Auckland loans were converted to MSP.
We're in the process of converting first mortgages for seven new MSP clients and converting home equity portfolios for for existing clients.
We are also implementing mpower for first mortgages for four new clients, while adding home equity capabilities for five existing clients.
As you can see clients continue to see the value of using our proven software to originate and service, both first mortgages and home equity loans.
As a leader in our industry, we are focused on growing our business, while also actively managing risk.
As a result, a couple of years ago, we made a strategic and risk based decision to sunset a non core single client platform and our specialty servicing business.
Although profitable this business pose the potential risk to our franchise.
Based on the complexity to convert to another platform, we had expected decline to de convert from our system in 2020.
However, the deconversion occurred at the end of the second quarter, resulting in a revenue headwind in the second half of this year.
In closing the core fundamentals of our business remains strong and we continue to focus on and make progress signing new clients cross selling our offerings implementing signed clients and delivering new innovative solutions.
Thank you for your time today I'll now turn the call over to Kirk for a financial update.
Thank you Anthony and good morning, everyone today Im going to discuss our second quarter results and our outlook for the second half of the year turning to slide three on a GAAP basis second quarter revenues were $295 million, an increase of 7% compared to the prior year quarter net earnings were $32 million, a decrease of 20% compared to the prior year quarter.
Diluted net earnings per share was 21 cents, a decrease of 22% compared to last year. The effective our indirect investment than done in bradstreet or Dnbi was a reduction of net earnings of $13 million or nine cents per diluted share. The dnbi results reflect among other things the incremental amortization related to the application of purchase accounting as well as significant onetime restructuring charges.
Net earnings margin decreased 370 basis points to 10.8% compared to 14.5% in the prior year quarter year to date revenues were $578 million, an increase of 6% net earnings were $71 million or 48 cents per diluted share a decrease of 14% and net earnings margin was 12.3% a decrease of 280 basis points compared to the prior year period.
Turning to slide four I'll now discuss our adjusted results for the second quarter and first half of 2019.
Second quarter, adjusted revenues were $295 million, an increase of 6% compared to the prior year quarter, adjusted EBITDA was $148 million an increase of 10%.
Adjusted EBITDA margin was 50.1% an increase of 170 basis points.
Adjusted net earnings were $73 million or 49 cents per diluted share an increase of 7%.
And finally second quarter capital expenditures were $23 million.
Year to date adjusted revenues were $578 million, an increase of 5% compared to the prior year period, adjusted EBITDA was $285 million an increase of 8%.
Adjusted EBITDA margin was 49.3% an increase of 120 basis points and adjusted net earnings per share was 94 cents an increase of 6%.
And finally capital expenditures were $45 million.
Turning now to slide five I'll discuss our software solution segment results.
Second quarter adjusted revenues for the softer solutions segment increased 7% to $255 million.
Our servicing software solutions had adjusted revenue growth of 7% driven by loan growth on our core servicing softer solution from new and existing clients.
Higher average revenue per loan and a contract termination fee related to a client that was acquired partially offset by lower ancillary revenues and transaction volumes on a core servicing solution.
In origination software solutions adjusted revenues increased 8% driven by growth in our loan origination software business.
Adjusted EBITDA increased 9% to $154 million and adjusted EBITDA margin was 60.3% an increase of 90 basis points.
Year to date adjusted revenues in the software solutions segment increased 6% to $499 million adjusted EBITDA increased 6% to $295 million, while adjusted EBITDA margin was 59% in both periods.
Turning to slide six second quarter adjusted revenues for the data and analytics segment increased 3% to $40 million driven by growth across nearly all business lines.
Adjusted EBITDA decreased 4% to $9 million due to higher personnel cost as we grew our sales team and experienced higher medical costs.
Adjusted EBITDA margin was 23.7% compared to 25.3% in the prior year quarter.
Year to date adjusted revenues increased 4% to $79 million adjusted EBITDA increased 5% to $19 million, while adjusted EBITDA margin was 24.3% an increase of 20 basis points compared to the 2018 period.
Adjusted EBITDA for the corporate segment in the second quarter was $2 million favorable compared to last year, driven by lower incentive based compensation.
Year to date adjusted EBITDA for the corporate segment was $4 million favorable compared to the 2018 period.
Turning now to slide seven I'll walk through our capital structure at the end of June we had cash and cash equivalents of $9 million total debt principal as of June Thirtyth was $1.644 billion with revolver borrowings outstanding of $403.5 million and $346.5 million of borrowing capacity remaining under our revolver. Our leverage ratio was 2.9 times on a gross and net basis.
Finally, we repurchased 205000 shares for $12 million during the second quarter and continue to have approximately 3.6 million shares available to repurchase under our share repurchase authorization.
Turning to slide eight.
Primarily as a result of the earlier than planned client de conversion that Anthony mentioned, we are revising our outlook for full year 2019.
We now expect GAAP revenues to be at the low end of the prior guidance range of $1.177 billion to $1.199 billion.
Adjusted revenues are expected to be at the low end of the prior guidance range of $1.178 billion to $1.2 billion.
Adjusted EPS is expected to be at the low end of the prior guidance range of $1.90 cents to $2.
Adjusted EBITDA is expected to be at the low end of the prior guidance range of $581 million to $598 million.
Additional modeling details underlying our outlook are as follows we expect interest expense of approximately $64 million to $66 million depreciation and amortization expense of $138 million to $140 million, excluding the incremental depreciation amortization, resulting from purchase accounting.
And adjusted effective tax rate of approximately 25% to 26% and finally capex approximately $105 million.
Overall, we are pleased with our second quarter and first half results and look forward to another solid year for Black Knight and 2019 with that operator. Please open the line for Q and a.
Thank you.
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Our first question comes from John Campbell of Stephens.
Hey, guys good morning.
Good morning, John .
Hey on the client de conversion can you maybe provide a little bit more color around I guess the decision to roll that off why it happened this year versus next and then I might have missed this but what was the revenue impact just just trying to get a better sense for that.
For the impact of the back half of guidance.
Sure.
Yes, the revenue impact is a 16 million dollar a year client and the reason that we did that was.
You know we've got a great company like I said in my prepared remarks, and we need to grow responsibly and that involves managing risk operational risk security risk reputation risk.
Et cetera, and this client was a single client that did no other business with us and it was a non core platform that no. Other client was using it wasn't core to our business.
That we thought introduce some unnecessary risk to black Knight.
So like I said, a couple of years ago made the decision to no longer offer the platform to the client.
And.
The client went on to build.
A replacement product with a another partner custom solution.
And.
And based on the complexity of the platform and the conversion and we assume that they would maintain the full scope of the project, which they did and towards the end. So there are a couple of.
Changes that had accelerated the deconversion to the second quarter versus to 2020.
Okay. That's very helpful and then on the origination channel.
I just want to check on the pricing environment.
We've been hearing that I guess, one of your top competitors on the origination side, just is pushing price pretty pretty dramatically I don't know if you can comment on that and if not maybe if you could just talk about kind of the broader health of the channel if it's gotten back to a point of.
Health, where you guys might be able to take some price here and there.
Yes sure.
We're very pleased and you see it in the results of our origination business, we've got great momentum.
And and it's our origination platform, but it's all the other innovation that were coming to market with seamlessly integrating termination platform. So our capability and our story gets bigger and bigger I'd say.
We're well within our range on pricing from the origination channel and feel good about the prospects there.
Okay, great. Thanks, guys.
Thank you John .
Our next question comes from Jason Deleeuw of Piper Jaffray.
Yes. Good morning, Thanks for taking the question on its great to see the momentum here on the servicing digital wins and some of the things with Eva.
Some of the other complementary solutions out there I'm trying to get a sense of the incremental revenue and the benefit that we're going to get for revenue and earnings from those is there any way you can kind of help us think about that is it a material amount of revenue or how should we think about it.
Sure Jason It's Kirk.
It's a great question as we've talked about in the past.
Looking at each of each of the individual ones, we've been talking about now for a while being servicing digital and Eva and IP as some of the some of the more significant ones. They will be gradual. So for example, the wins on on servicing digital.
We're really thrilled to have had the level that we signed so far the revenue will be coming on there are some revenue. This year it'll ramp next year and then we believe we'll continue to sell and so it will ramp for the next couple of years thereafter.
That product is certainly a great add onto our servicing platform and.
Order of magnitude could be 1% to 2% of revenue just looking at relative to our current base.
As as it ramps up and that'll be the there'll be the quickest to ramp. The next one I would say would be Eva and that's one again was pre revenue when we acquired it last year, we continue to add skills. It continues to gain momentum with the client base. The excitement is tremendous.
Related to Eva, but that's one that again is going to ramp over time and as we've talked about in the past you are thinking about the magnitude of that it certainly is going to play out over over years as we continue to build skills and continue to roll it out, but but it's not something that I could even range bound by how how large it could be because frankly, it will grow in servicing I'm sorry, it will grow in origination, adding skills, adding skills will expand it into servicing and there's just so much that we can do that but I really cant range bound that with size and with HAE IP with 100 analytics that we have there and including it in deals and signings that were very pleased with.
In the quarter and the prospects there. That's another one that will just that will ramp up I'd say a bit slower than than the first two but thats something that I think again as its hard to range bound from a from a size perspective. So as we look forward and think about the way that we're going to continue to grow this business at the at the levels that we have in that 6% to 8%.
Going forward I think that that introducing these new solutions will really be key to that last leg of growth, which is driving new deals.
And we think those those three plus the other ones that we've been talking about and you'll notice as you go back over the last several calls say over the last year or so each quarter Theres, new things that we're talking about this quarter. It was regulatory assessed that we're talking about which there is a lot of excitement in the client base around so.
It's really important that not only that each of them contribute individually, but that we continue the engine of innovation to drive that aspect of growth.
That's very helpful. Thanks for all that detail and then another question on the mortgage origination front.
A number of banks are a lot of banks still run separate platforms I believe on the correspondent channel versus the retail channel.
And I'm, just trying to better understand why is that changing other compelling reasons.
Just integrate both of those channels on the one platform just like to get your perspective on that.
Sure Jason It's Anthony now the without question. It makes a lot of sense for them to combine on the empower platform.
I think at the end of the days they look at their different channels.
The their need to need to be satisfied and when we look at all the different channel capabilities. We have on Mpower, we can meet them and exceed them and so if you can do that by channel then certainly putting them all onto the same platform is just going to give them synergies and efficiencies.
And the type of leverage that everyone's looking for and running their business. So we strongly believe that that makes sense. That's.
It was the strategy that we called out that we're going after and we are working tirelessly against and we're very pleased with the results that we're seeing so far.
Sounds good thank you.
Thanks, Jason.
Our next question comes from Tien Tsin Huang of JP Morgan.
This is funny sitting in for Tenzing.
A follow up question on Avon Lake.
And speaking to past you have talked about like that.
Focus on increasing revenue per loan.
But can you talk about like you talk us bad luck how's that metric trending and are you seeing any improvement in that technology investments like Iowa or is it too early.
Sure.
No. Thank you for me.
Well you know, we we want to quantify so first of all we focused our Eva efforts around origination for a couple reasons we knew.
Originations would really be a tailwind of growth for us and the company and we want it to wrap lots of capability around it.
We saw that the the spend per origination has continued to grow.
Over the years and there was an opportunity to help our clients.
Lower costs and be more efficient and.
And when we looked at it we wanted to quantify it for our clients so that.
It was something that they could bank on.
And with the top 50 lender, who is using hey, Bob.
Hired Marketwise advisors and as I said in my prepared remarks.
Just on the income asset insurance and file intake.
Those four skills save $437 per loan.
So we're very confident if we can make it a very mathematical conversation with our clients to show the skills showed the savings.
It becomes a capability and the skill set that sells itself. So we're we're excited about it.
Because.
Again on our.
Hey, my very first.
Earnings call I talked about our strategy to help transform the industry and to really help drive revenue growth efficiency and.
And manage risk for our clients. This is one where we've got a clear line of sight into how we can help them on the revenue side and on the efficiency side and we're very focused on it and put any what I would add is if you go back a couple of years and think about how we were selling our loan origination system. We are selling the winterization system someone on a standalone basis and selling the processing. What's happened. Since then is frankly, we have worked to increase that revenue per loan by adding in additional capabilities, whether it be data and analytics or the exchange or E lending and really really bundling. It altogether, so that revenue per loan on a at a client level.
Is increasing and you've seen us further that with the fee capabilities that we acquired late last year with Ernst and then Eva would be additive to that so it is something that we absolutely have been focused on as we brought the entire company together an integrated components and then and then took a one step further by really bundling all of that all those capabilities into the into our individual client deals. So that absolutely is the is the plan.
And you'll see that going forward to continue.
Got it and quickly.
How fast your origination business responds to change changes in interest rate environment I know on the downside or you are protected by the minimum specked on the upside to three five volume improves.
How fast how quickly should we expect that to reflecting the origination business.
Sure. If you look at it the origination business and two buckets and you look at the loan origination system component, where we have the contractual protections with the minimums that as of last quarter, 98% of the processing revenues were at or below the minimums.
This quarter to 95%. So there was there is a little bit of improvement with the with the drop in rates.
But still there's still theres room to go the components of the business that we've talked about in the past being highly sensitive to refinance volumes is the exchange, which is the network that connects lenders and service providers during the origination process. The order settlement services and that business. We saw the uptick in that we saw the benefit of the of lower rates and increase in refi volumes in the quarter as it went from as it went up I think it was $28 billion or so according the MBA from Q2 last year to Q2. This year frankly, not a very big increase in the Grand scheme of things on a dollar at a dollar basis percentage wise, it looks like something but but theres still at relatively low levels and have clearly have room to go from there you look at the last 10 year average the average quarterly origination volumes refi origination volumes were $229 billion in this quarter. They were 146 billion. So we're still nowhere near historical averages.
And but we did see the uptick so so that is what we what we would expect.
To see and it happens quickly, but but it really the magnitude wasn't wasn't that great.
And frankly was offset by lower foreclosure volumes, because the quality of originations continue to be very high and in a good economy.
Foreclosure volumes, just really aren't very high which then lends itself to.
And environment when the recession does come and rates continue to go down and refi volumes accelerate back up to the elevated levels that you've seen in prior recessions and unemployment rises in foreclosure volumes go up and Thats, where frankly, the business would perform very well in that environment. So theres that aspect to which I know you are well aware of.
Okay. Thank you.
Our next question comes from Bose George of KBW.
Hey, guys. This is Tommy on for Bose.
Hi, Don.
I wanted to get an update on the changes that die taxes did that early did that initial new from earlier. This year impact 2019 numbers and you have an expectation for kind of future numbers could be impacted depending on what happens to the rest of drydock.
Oh, yeah, yeah the loans.
Have been are in the process of moving related to that earlier announcement this year.
As far as as as the path forward.
The public announcement about about NRC acquiring some assets of Ditech and planning to move those those loans to shell point, which is their captive service or they talked about that on their earnings call.
Theres been no public disclosure on on timing related to that but what I would say is to the extent that those loans move to shelf like who is not an MSP client at this time.
I would say to the extent that those if those do eventually move to shell point.
That that suffice to say, we will work tirelessly to work with shell point to try to bring them into the Black Knight family. They are they are growing.
If I heard you have doubled their loans and clearly are in a space, where we think that theres a lot that we can do for them that there is a lot that where we could benefit.
With them and frankly any service are of size that that MSP would be that we think would be a great solution for them.
Got it thanks, and sorry, if I missed this was the deconversion, which segment I guess revenue line item did that hit and what was the I guess general margin profile of those revenues.
It's in the it's in servicing so its within the software solutions segment and.
The profitability was was pretty good on it but it was not if not to the point, where we were willing to continue to take that risk.
Got it thanks guys.
Thank you.
Our next question comes from Stephen Sheldon of William Blair.
Good morning.
Within the origination business I think you've talked about high single to low double digit growth. This year, you saw a little acceleration this quarter.
The Big can you maybe talk about expectations over over the rest of the year would you expect maybe continued acceleration given implementations and the potential modest uplift from higher re Fi activity.
Yes, we would expect there to be faster growth in the second half than in the first half by virtue of of sales and as well as an element of the volumes, but that's a business that certainly as the headwinds abate from from lower refinance volumes and we continue to have success, which we're very excited about around mpower now and our penetration with large lenders that we've talked about we think the parts of that business is going to be terrific.
Great.
And then Anthony maybe one for you.
Clearly you have a lot on your plate running two large complex organizations.
So I guess can you maybe provide some update on where you plan to focus your time over the rest of the year within and kind of between the two businesses and maybe just a broader update on on how things are progressing at Dun <unk> Bradstreet in your view.
Sure I mean, all my time is spent on creating shareholder value for black Knight either directly here or.
Through our investment in Dun <unk> Bradstreet, and we've got very strong teams in place.
At both companies we've had here at Black Knight for a while.
And I'd say on the Dun <unk> Bradstreet side, we've made a lot of changes.
At the early started this year and have a very very strong very capable team running that operation.
What I'd say on the on the results were.
Okay, and I will be updating in a couple of days, but we continue to be ahead of schedule on the cost takeout.
And on the reengineering of the business. So again, we're very pleased with that and.
And again in terms of the natural timing of these things when we looked at how we went through that process with Black Knight would then followed was really the push on innovation, which we're seeing right now at Black Knight and as Kirk said.
Every quarter, we're coming out with more and more new capability or functionality. So it's an innovation engine that we have here which is.
Running full speed and in its something which I joke internally that you know.
I pushed on it a bit and then the teams all ran with it and the running way in front of all of Us and Theres a spirit of.
Of innovation, that's going on and an excitement around it.
So that's how it kind of summarize where we are with both companies at high level.
Great. Thank you.
Thank you.
Our next question comes from Chris Jim Gattoni of Compass point.
Hi, good morning, everyone.
Good morning, Chris.
I wanted to talk about the strategic direction for the LLS business I look at the announcement for digital point of sale and the integration of dock Your tech.
Appears to me that it signals a.
A more concentrated push down market to kind of out of the box more standardized solution. Maybe just talk about your focus from power now over the next two years.
Sure well.
As I said within power now and it going more down market on.
Two of the calls we had last year when the questions came up.
I answer them, saying I understand the down market space and what we need to do and it goes beyond just the product that goes into the implementation. It goes into the customer servicing and it goes into the integration and the out of the box integration capabilities.
And.
I feel we've made very steady progress on that we've hired additional sales.
Executives on to sell the product.
And you see it again this the suite of solutions that we have around that.
So as an example.
Looking at the Eva product and what we talked about with the savings per loan would be.
There is significant compared to what we would charge for an.
An origination software.
Per loan so so really the value that we're creating for our clients. When you look at the total cost of ownership and capabilities. A significant we expect that we will continue to increase our sales of Mpower now and continue to broaden out the family.
You know.
Thanks, Ed.
On the last call, we thought we double or triple the amount of sales we've had over the last few years Onempower now and 2019 I feel confident we're on track with that.
I'd say with the with the digital point of sale.
Capabilities.
We're very excited with that offering and again what were doing with it is we are.
We're taking the additional capability, such as Eva and bringing it into the digital point of sale.
Solution, so that it's adding new and unique capability that doesn't exist in the market today with existing point of sale solutions. So.
So that's just an example, but but what I'd say.
The message is resonating, though not with.
And just in power now and going down market, but also with our larger clients as they look at our point of sale as they look at these other capabilities and innovations that we brought in an integrated to them. So I'm very pleased with the progress we're making.
Because we're not we're not selecting going down market at the expense of ignoring the upper end of the market, we're in and the company and we're focused on.
Both those markets so.
And I expect that that will continue for some time.
All right and.
I'm not I think I missed exactly.
You noted you added sales for Salesforce in the quarter was that in data and analytics was that correct.
We Anthony was referring to the sales resources, we added in origination, but yes, we did add to the sales force and and data analytics as well.
Okay. Thank you so much.
Thank you Chris.
Our next question comes from Bill Warmington of Wells Fargo.
Good morning, everyone.
So the the staff we've seen on average spend per mortgage origination show about $8100 and I wanted to ask if that stat was consistent with what you've seen and to ask what type of percentage savings can you promise clients and does it differ between Mpower in Mpower now clients.
Well.
The 8100, it's in the range right and the last number I.
I saw I think had a nine handle the 9000, but okay, so plus or minus its in the range and.
And really the goal that I had set for the team was I wanted us to find ways to reduce it.
Yes significantly.
And.
And everyone like said when you look at the total spend not all of the spend is actionable right. So for example, what's being paid to loan officers in the form of commissions is not something we could really action here now we could indirectly action it with point of sale so as.
Our point of sale solution grows more and more on that becomes.
Our primary channel and they change maybe how.
How their sales efforts work or how they compensate there may be some indirect savings from it but.
I do think that there's meaningful ways that we can increase that like I said with the Eva example, that we gave that Weve quantified.
Through a thorough analysis.
$437 per loan and Thats just for skills. So we think it's we think it's a meaningful opportunity there for us and we think again just going through the math with our clients and with our prospects it'll be obvious of ways that we can help them save significant dollars on this channel, but at the same time improve the quality of it through the artificial intelligence.
Okay, and then a couple of housekeeping questions. What was there any revenue impact from the deconversion in Q2.
No.
And then my other one is just to ask about what happened on the DNA side the.
The deceleration to 2.6% growth versus the the.
Easiest comp.
In 2018, what was driving that.
Yes, what I would say actually there is a little bit of embedded tough comp in Q2 of last year, we had a couple of things that.
Not not significant to the enterprise, but to that segment in particular, probably cost up a point or two relative to this years growth rate and the other thing I'd say is we had probably up one point headwind from deals that we would have expected to sign in the second quarter that pushed into Q3.
Doesn't change our outlook for the year last quarter I talked about a mid single digit growth and we still we still believe that is the is the case at this time for the DNA segment for the year.
Got it well thank you very much.
Thank you Bill.
Our next question comes from Ashish Sebrae of Deutsche Bank.
Hi, Thanks for taking my question just quickly a quick clarification on the deconversion of the $16 million that's annualized right. So when do you think about this year just think about the back half in fact 8 million is that way to think about it.
That's exactly the right way to think about it.
Okay. Thanks.
Hercule support a lot of good color on the originations also sorry, but I was wondering if I missed it did you provide what the growth rate was for Mpower Lexis exchange.
It was so the loan origination system business grew 18%.
That said publicly that's fixed.
I'm sorry, that's the that's it that's empower and Lendingspace.
Okay, and what about the exchange any color like how much was still kind of a headwind gave part of the deal this quarter from the refinance activity I know you gave us.
On the amounts, but anything on the books.
Stones.
Yeah. It was it was it was very is relatively small it was.
Do you think about the again the relatively small percent dollar value increase in origination volumes. It was a pretty small increase on the exchange as a result of re Fi.
Okay. That's helpful and maybe a quick clarification I think you mentioned there was some films fees and a termination fees in the second quarter.
Good possible to quantify.
They get there.
Yes. It was it was $4 million. It was a client that was was acquired and terminated in the quarter.
And the annual revenue for that client, it's really more of an impact on next year.
It's about $8 million.
Okay. That's helpful.
And maybe just a final quick clarification on though.
The acquisition of dissect already some good color, but as we think about that just in terms of not only the amount of time exploring any kind of an election.
You wouldn't necessarily think about it.
The timing would be more next year would that be a fair assumption as well.
Yes, that's our that's our assumption at this stage.
Okay. That's helpful and Anthony Congrats on solid momentum in new product launches and put option.
Thanks.
Thank you so much ashish.
Teams done a great job here.
Our next question comes from Andrew Jeffrey of Suntrust.
Hey, good morning, guys. Thanks for taking the question.
Good morning.
A very thorough as usual.
I wonder if I could delve into the the point of sale opportunity a little bit.
As.
As the environment is sort of changing for for banks and in terms of third party originations for example.
Is there an opportunity to expand your technology exposure beyond mortgage and.
In point of sale into other.
And the other lending verticals and I guess sort of as a corollary.
Is there any talk I know you've got lots of different initiatives, but has there been any discussion about for example, expanding MSP beyond mortgages. So I guess it beyond mortgage question broadly.
Yeah, Andrew it's Anthony.
It is something that.
That we.
Looked at and continue to look at in terms of.
Seeing what the opportunity is as we look at other.
Growth channels, such as geographic et cetera.
But what I'd say at this stage and having.
Spend time.
Working across all the different asset types unit previously in my career, there is a lot of new launch there, which.
As we look at what we see that we can do in terms of impact we see the impact that we can have really.
In mortgage for the next number of years just greatly outweighing.
What I'm more diluted focus would bring to us in that space and so that's really the priority that we've got right now and it's really strategies always about how do you want to spend your time energy and.
And resources and.
And for US, we see a big opportunity here that we want to make sure. It's I gave US right, we see opportunity with Eva on the servicing side of the business, but we've got a very targeted on origination because we believe by doing it that way, we're going to create something phenomenal.
It's going to be very measurable unquantifiable, and thats going to help us grow and take full advantage of it.
It's the same thing I'd say on the point of sale and.
And MSP in terms of.
On the space as you know we're.
We're well into the home equity space right pro forma we've got about a third of the market already after a very short period of time so.
On all of these things our strategy is really making sure we've got the focus to execute and to capture the market versus.
The notion wide and arrange dropped deep across a lot of different capabilities.
Okay, that's a high class problem.
Yes regarding.
Perfect and then.
Kirk I just wanted to clarify a comment did did you say the company.
Invested in incrementally in DNA sales in the quarter and is that sort of an indication of.
Perhaps an opportunity that you see to accelerate growth I just wanted to get a little color on that.
Yes. The resources were hired late last year early this year it affected the quarter, which is why I brought it up I would say that we continue to focus on sales execution and data and analytics as well as.
Increasing productivity there and frankly the performance. We think has been has been very good but do we think theres an opportunity to accelerate we sure do but it certainly a salesforce productivity takes time and so that's something that we expect to see going forward, but but it shows commitment to the business and the space and a focus on growth.
Okay, and if I can add to that yes, Bose if I could add onto that we've got a real focus not on just integration of our products and our solutions, but also of our teams and our account management and our sales teams and.
And we see an opportunity to.
To ramp that up as well and so we're really just and it's not just DNA. It's in all the products that we have how do we bring it all together for our clients and a frictionless way.
Beyond technology, and beyond just account and sales management.
Appreciate it thank you.
Thank you and again.
Our next question comes from Jim Schneider of Goldman Sachs.
Good morning, Thanks for taking my question.
Relative to the outlook I, just want to kind of confirm.
Apologies if I missed it before are there any changes to the existing kind of on boarding assumptions about your clients, who are coming on the servicing and origination platforms in the <unk> in the back half of the year or or is the entire update simply to reflect that won the conversion in Q2.
Sure Jim No what I'd say is we're pleased with the implementations that we've got underway things are on track and.
Teams continue to have great job that way.
And just one last thing I would add would be as you think about the guidance revision, we talked about $8 million.
Well first of all we just take a step back when we put guidance together the beginning of the year. We plan at the mid point and so as you think about that and the relative change that we made today, we've got the $8 million related to the client de conversion and then I mentioned in my remarks and in the software segment.
Ancillary services and transaction volumes and in servicing and that that really would be the other component of it that historically, we've seen steady growth and some of the activity based charges.
In servicing and this year, it's frankly been been relatively flat.
And so that really is the other aspect of it.
That's helpful. Thanks, and then maybe Anthony relative to your commentary on Mpower nails and power now sales I think you talked about I believe eight to 10 wins you expect for the year can you maybe just talk about.
At what point, you feel that's going to be.
Materially accretive to the to the overall growth on now.
On on that sub segment and I guess.
Any of that impacting the current your outlook or is that more of a kind of a mid 2020 statement.
No we are confident with our capabilities there and we're on track with.
What I had mentioned as our projection with empower now and it already is accretive it's adding value and growth to the business already. So so we're excited about that and we think it will continue and ramp up next year and the year after.
Thank you very much.
Thank you.
Once again, if you have a question. Please press Star then one.
Our next question comes from Kevin Kaczmarek of Zelman and associates.
Hey, guys. Thanks for taking my questions.
Regarding the deconversion again can you give us a sense of how many other like non core single client platforms do you have maybe a percent of revenue.
Sure.
Sorry, I think Kirk you can chime in.
I'd say like all great companies and we've consistently focused on a product portfolio to balance financial performance and to balance risk.
We sunset a number of products over the years, but it's usually a business as usual event.
We're only mentioning this one because of the.
Really the timing and the magnitude of it so.
I'd say.
There are pockets of them as there are in every company, but they're nowhere near the scale of of what this one.
Okay.
Thanks for that is very helpful and regarding the.
You mentioned that fidelity and try it.
MSP wins, when you think about moving to maybe go away from some of the very largest servicers can.
You're talking about the general fee per loan trends in incremental margins versus your historical base a larger customers, obviously something like him is MSP isn't cheap to implement and it comes in with a certain amount of fixed costs. So when you're going after the smaller clients can you talk about how your bright balancing the price per loan incremental margins and it may be comment on the cash flow during implementation.
And how you balance that with what you want to charge versus what they can reasonably pay.
What I would say Kevin is that our pricing is tiered pricing and so a smaller client growth that will pay at a at a lower tier so to speak meeting meeting a higher price.
But it still is incredibly efficient for them relative to other options and puts them in a much more safe and secure place from a from a regulatory perspective, and so actually that the lumpy. The lower end of the market is very attractive to us from a great price per loan perspective, but yet is a tremendous value for for the client as far as the complexity to implement and certainly for a smaller client it's less complex to implement than it is.
Then it is for a very larger client and so therefore, it should be on the on the quicker side and less expensive side too to implement.
Okay, and lastly, I know you don't want to give specifics on exactly when a client comes on but what we're talking about a range of.
In terms of maybe number of quarters, a number of months say in how long might might DSP.
A typical typical client is 12 to 18 months.
Could be a little could be a little inside of that for dependent but it really a lot of that is dependent on the client and not just on on us.
Yes, okay.
Yes, so for the two.
Look at.
Most likely the 12 month range, where what they're looking for from us and the way we're able to do it cost effectively is.
Our clients are looking for us to be more prescriptive with them in terms of what we think they should do versus.
A racing what's on the whiteboard, letting and designed with how they want us to retrofit our system to match their needs.
They are seeing with our scale with a level of expertise we have.
Their colleagues here in Black Knight.
That they want us to be more prescriptive on how they should set up the system and.
And by doing that it's easier for us to implement its faster and it's less expensive and it works out really for both both parties in this example.
Okay, great. Thanks for taking my questions.
Thanks, Thank you Kevin.
There are no further questions at this time I would like to turn the floor back over to Anthony for closing comments.
Sure. Thank you.
As always I'd like to thank my Black Knight colleagues for their exceptional efforts and our clients for the strong partnerships. Thank you for joining us on the call today and for your interest in our Great company enjoy the rest of your day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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