WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended SeptemberJune 30, 2017
OR
Commission File Number 001-37394
Black Knight, Inc.
______________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
| | |||||
| | | | | ||
Delaware | 81-5265638 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||
601 Riverside Avenue | , | Jacksonville | , | Florida | 32204 | |
(Address of principal executive offices) | (Zip Code) |
(904) 854-5100
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.0001 par value | BKI | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | |||||
| | | | | | | | | | | |||||
Large accelerated filer | ☑ | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | ||||||
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
There were 153,469,978156,630,031 shares outstanding of the Registrant'sRegistrant’s common stock as of November 1, 2017. August 4, 2021.
QUARTERLY REPORT
Quarter Ended SeptemberJune 30, 2017
TABLE OF CONTENTS
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38 | |
i
Item 1.Condensed Consolidated Financial Statements (Unaudited)
BLACK KNIGHT, INC.
(In millions, except share data)
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 146.2 | $ | 133.9 | |||
Trade receivables, net | 169.2 | 155.8 | |||||
Prepaid expenses and other current assets | 42.5 | 45.4 | |||||
Receivables from related parties | 18.5 | 4.1 | |||||
Total current assets | 376.4 | 339.2 | |||||
Property and equipment, net | 165.0 | 173.0 | |||||
Computer software, net | 422.1 | 450.0 | |||||
Other intangible assets, net | 248.5 | 299.5 | |||||
Goodwill | 2,306.8 | 2,303.8 | |||||
Other non-current assets | 231.2 | 196.5 | |||||
Total assets | $ | 3,750.0 | $ | 3,762.0 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Trade accounts payable and other accrued liabilities | $ | 52.1 | $ | 55.2 | |||
Accrued compensation and benefits | 39.2 | 61.1 | |||||
Current portion of long-term debt | 55.1 | 63.4 | |||||
Deferred revenues | 54.2 | 47.4 | |||||
Total current liabilities | 200.6 | 227.1 | |||||
Deferred revenues | 98.1 | 77.3 | |||||
Deferred income taxes | 301.8 | 7.9 | |||||
Long-term debt, net of current portion | 1,486.9 | 1,506.8 | |||||
Other non-current liabilities | 12.5 | 3.5 | |||||
Total liabilities | 2,099.9 | 1,822.6 | |||||
Commitments and contingencies (Note 6) | |||||||
Equity: | |||||||
Black Knight, Inc. common stock; $0.0001 par value; 550,000,000 shares authorized; 153,473,895 shares issued and outstanding as of September 30, 2017 | — | — | |||||
Black Knight, Inc. preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of September 30, 2017 | — | — | |||||
Black Knight Financial Services, Inc. Class A common stock; $0.0001 par value; 350,000,000 shares authorized; 69,091,008 shares issued and outstanding as of December 31, 2016 | — | — | |||||
Black Knight Financial Services, Inc. Class B common stock; $0.0001 par value; 200,000,000 shares authorized, 84,826,282 shares issued and outstanding as of December 31, 2016 | — | — | |||||
Black Knight Financial Services, Inc. preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of December 31, 2016 | — | — | |||||
Additional paid-in capital | 1,594.9 | 810.8 | |||||
Retained earnings | 54.2 | 65.7 | |||||
Accumulated other comprehensive earnings (loss) | 1.0 | (0.8 | ) | ||||
Total shareholders' equity | 1,650.1 | 875.7 | |||||
Noncontrolling interests | — | 1,063.7 | |||||
Total equity | 1,650.1 | 1,939.4 | |||||
Total liabilities and equity | $ | 3,750.0 | $ | 3,762.0 |
(Unaudited)
| | | | | | |
| | June 30, 2021 | | | December 31, 2020 | |
ASSETS | | | | | | |
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 88.7 | | $ | 34.7 |
Trade receivables, net | |
| 183.6 | |
| 182.2 |
Prepaid expenses and other current assets | |
| 86.3 | |
| 70.4 |
Receivables from related parties | |
| 10.5 | |
| 0 |
Total current assets | |
| 369.1 | |
| 287.3 |
Property and equipment, net | |
| 157.5 | |
| 163.1 |
Computer software, net | |
| 496.5 | |
| 498.3 |
Other intangible assets, net | |
| 624.6 | |
| 692.3 |
Goodwill | |
| 3,649.6 | |
| 3,613.4 |
Investments in unconsolidated affiliates | |
| 475.8 | |
| 470.5 |
Deferred contract costs, net | |
| 179.6 | |
| 172.3 |
Other non-current assets | |
| 213.2 | |
| 193.3 |
Total assets | | $ | 6,165.9 | | $ | 6,090.5 |
LIABILITIES AND EQUITY | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Trade accounts payable and other accrued liabilities | | $ | 73.8 | | $ | 88.1 |
Accrued compensation and benefits | |
| 91.0 | |
| 79.3 |
Current portion of debt | |
| 19.0 | |
| 73.0 |
Deferred revenues | |
| 68.7 | |
| 50.9 |
Total current liabilities | |
| 252.5 | |
| 291.3 |
Deferred revenues | |
| 82.7 | |
| 92.7 |
Deferred income taxes | |
| 282.1 | |
| 284.0 |
Long-term debt, net of current portion | |
| 2,216.3 | |
| 2,121.9 |
Other non-current liabilities | |
| 90.1 | |
| 94.9 |
Total liabilities | |
| 2,923.7 | |
| 2,884.8 |
Commitments and contingencies (Note 11) | |
|
| |
|
|
Redeemable noncontrolling interests | |
| 578.0 | |
| 578.0 |
Equity: | |
|
| |
|
|
Common stock; $0.0001 par value; 550,000,000 shares authorized; 160,040,598 shares issued and 156,635,838 shares outstanding as of June 30, 2021, and 160,085,413 shares issued and 157,014,712 shares outstanding as of December 31, 2020 | |
| 0 | |
| 0 |
Preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, NaN as of June 30, 2021 and December 31, 2020 | |
| 0 | |
| 0 |
Additional paid-in capital | |
| 2,021.0 | |
| 2,053.7 |
Retained earnings | |
| 852.4 | |
| 757.4 |
Accumulated other comprehensive loss | |
| (32.6) | |
| (38.8) |
Treasury stock, at cost, 3,404,760 shares as of June 30, 2021 and 3,070,701 shares as of December 31, 2020 | |
| (176.6) | |
| (144.6) |
Total shareholders’ equity | |
| 2,664.2 | |
| 2,627.7 |
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | | $ | 6,165.9 | | $ | 6,090.5 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
1
(In millions, except per share data)
(Unaudited)
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Revenues | | $ | 361.3 | | $ | 293.1 | | $ | 711.0 | | $ | 583.8 |
Expenses: | |
|
| | |
| |
|
| |
|
|
Operating expenses | |
| 197.0 | | | 155.5 | |
| 383.2 | |
| 317.9 |
Depreciation and amortization | |
| 90.4 | | | 58.6 | |
| 178.2 | |
| 116.3 |
Transition and integration costs | |
| 4.3 | | | 2.5 | |
| 12.2 | |
| 4.9 |
Total expenses | |
| 291.7 | |
| 216.6 | |
| 573.6 | |
| 439.1 |
Operating income | |
| 69.6 | |
| 76.5 | |
| 137.4 | |
| 144.7 |
Other income and expense: | |
|
| |
|
| |
|
| |
|
|
Interest expense, net | |
| (20.9) | | | (13.0) | |
| (41.2) | |
| (27.7) |
Other (expense) income, net | |
| (1.0) | | | 18.8 | |
| (4.2) | |
| 18.0 |
Total other (expense) income, net | |
| (21.9) | |
| 5.8 | |
| (45.4) | |
| (9.7) |
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates | |
| 47.7 | |
| 82.3 | |
| 92.0 | |
| 135.0 |
Income tax expense | |
| 10.5 | | | 17.2 | | | 15.7 | |
| 25.4 |
Earnings before equity in (losses) earnings of unconsolidated affiliates | |
| 37.2 | |
| 65.1 | |
| 76.3 | |
| 109.6 |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | |
| (5.0) | | | (26.0) | |
| 1.4 | |
| (20.4) |
Net earnings | |
| 32.2 | |
| 39.1 | |
| 77.7 | |
| 89.2 |
Net losses attributable to redeemable noncontrolling interests | |
| 7.5 | | | — | |
| 16.1 | |
| 0 |
Net earnings attributable to Black Knight | | $ | 39.7 | | $ | 39.1 | | $ | 93.8 | | $ | 89.2 |
Other comprehensive earnings (loss): | |
|
| |
|
| |
|
| |
|
|
Unrealized holding (losses) gains, net of tax(1) | |
| (0.2) | | | (2.6) | |
| 0.3 | |
| (24.2) |
Reclassification adjustments for losses included in net earnings, net of tax(2) | |
| 4.0 | | | 3.2 | |
| 7.9 | |
| 4.4 |
Total unrealized gains (losses) on interest rate swaps, net of tax | |
| 3.8 | |
| 0.6 | |
| 8.2 | |
| (19.8) |
Foreign currency translation adjustment, net of tax (3) | |
| (0.1) | | | — | |
| (0.4) | |
| (0.2) |
Unrealized gains (losses) on investments in unconsolidated affiliates(4) | |
| 1.5 | | | (1.5) | |
| (1.6) | |
| (1.7) |
Other comprehensive earnings (loss) | |
| 5.2 | |
| (0.9) | |
| 6.2 | |
| (21.7) |
Comprehensive earnings | |
| 37.4 | |
| 38.2 | |
| 83.9 | |
| 67.5 |
Net losses attributable to redeemable noncontrolling interests | |
| 7.5 | | | — | |
| 16.1 | |
| 0 |
Comprehensive earnings attributable to Black Knight | | $ | 44.9 | | $ | 38.2 | | $ | 100.0 | | $ | 67.5 |
Net earnings per share attributable to Black Knight common shareholders: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.26 | | $ | 0.26 | | $ | 0.60 | | $ | 0.60 |
Diluted | | $ | 0.25 | | $ | 0.26 | | $ | 0.60 | | $ | 0.60 |
Weighted average shares of common stock outstanding (see Note 5): | |
| | | | | |
|
| |
|
|
Basic | |
| 155.4 | |
| 149.2 | |
| 155.5 | |
| 148.6 |
Diluted | |
| 155.7 | |
| 150.0 | |
| 155.8 | |
| 149.3 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 263.8 | $ | 267.1 | $ | 784.1 | $ | 764.5 | |||||||
Expenses: | |||||||||||||||
Operating expenses | 140.7 | 152.2 | 428.2 | 433.4 | |||||||||||
Depreciation and amortization | 51.3 | 56.8 | 154.2 | 154.2 | |||||||||||
Transition and integration costs | 4.0 | 1.1 | 8.5 | 2.2 | |||||||||||
Total expenses | 196.0 | 210.1 | 590.9 | 589.8 | |||||||||||
Operating income | 67.8 | 57.0 | 193.2 | 174.7 | |||||||||||
Other income and expense: | |||||||||||||||
Interest expense | (14.1 | ) | (16.9 | ) | (44.8 | ) | (50.6 | ) | |||||||
Other expense, net | (0.6 | ) | (1.4 | ) | (17.1 | ) | (6.2 | ) | |||||||
Total other expense, net | (14.7 | ) | (18.3 | ) | (61.9 | ) | (56.8 | ) | |||||||
Earnings before income taxes | 53.1 | 38.7 | 131.3 | 117.9 | |||||||||||
Income tax expense | 9.2 | 6.3 | 24.3 | 19.2 | |||||||||||
Net earnings | 43.9 | 32.4 | 107.0 | 98.7 | |||||||||||
Less: Net earnings attributable to noncontrolling interests | 29.2 | 21.2 | 71.9 | 64.7 | |||||||||||
Net earnings attributable to Black Knight | $ | 14.7 | $ | 11.2 | $ | 35.1 | $ | 34.0 | |||||||
Other comprehensive earnings (loss): | |||||||||||||||
Unrealized holding gains (losses), net of tax | 0.3 | 0.4 | 0.9 | (0.9 | ) | ||||||||||
Reclassification adjustments for losses included in net earnings, net of tax (1) | — | 0.1 | 0.2 | 0.4 | |||||||||||
Total unrealized gains (losses) on interest rate swaps, net of tax (2) | 0.3 | 0.5 | 1.1 | (0.5 | ) | ||||||||||
Foreign currency translation adjustment | — | 0.1 | 0.1 | (0.1 | ) | ||||||||||
Other comprehensive earnings (loss) | 0.3 | 0.6 | 1.2 | (0.6 | ) | ||||||||||
Comprehensive earnings attributable to noncontrolling interests | 29.8 | 22.2 | 74.1 | 63.9 | |||||||||||
Comprehensive earnings | $ | 44.8 | $ | 34.0 | $ | 110.4 | $ | 97.3 | |||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings per share: | |||||||||||||||
Net earnings per share attributable to Black Knight common shareholders: | |||||||||||||||
Basic | $ | 0.22 | $ | 0.17 | $ | 0.52 | $ | 0.52 | |||||||
Diluted | $ | 0.21 | $ | 0.16 | $ | 0.51 | $ | 0.50 | |||||||
Weighted average shares of common stock outstanding (Note 2): | |||||||||||||||
Basic | 67.9 | 65.9 | 67.7 | 65.9 | |||||||||||
Diluted | 68.5 | 67.9 | 152.7 | 67.8 |
(1) | Net of income tax benefit of $0.1 million and income tax expense of $0.1 million for the three and six months ended June 30, 2021, respectively, and income tax benefit of $0.9 million and $8.2 million for the three and six months ended June 30, 2020, respectively. |
(2) | Amounts reclassified to net earnings relate to losses on interest rate swaps and are included in Interest expense, |
(3) | Net of income tax benefit of less than $0.1 million for the three and six months ended |
(4) | |
Net of income tax expense of 2020, respectively. |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
2
BLACK KNIGHT, INC.
(In millions)
Black Knight Financial Services, Inc. | Black Knight, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||
Class A common stock | Class B common stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss) earnings | Treasury stock | |||||||||||||||||||||||||||||||||||||||||
Shares | $ | Shares | $ | Shares | $ | Shares | $ | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2016 | 69.1 | $ | — | 84.8 | $ | — | — | $ | — | $ | 810.8 | $ | 65.7 | $ | (0.8 | ) | — | $ | — | $ | 1,063.7 | $ | 1,939.4 | ||||||||||||||||||||||||
Issuance of restricted shares of Class A common stock | 1.0 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Forfeitures of restricted shares of Class A common stock | (0.1 | ) | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Exchange of Class B common stock for Class A common stock | 0.2 | — | (0.2 | ) | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Tax withholding payments for restricted share vesting | (0.1 | ) | — | — | — | — | — | (4.3 | ) | — | — | — | — | — | (4.3 | ) | |||||||||||||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | — | — | — | — | 1.2 | (46.6 | ) | — | (46.6 | ) | ||||||||||||||||||||||||||||||||
Equity-based compensation expense | — | — | — | — | — | — | 14.0 | — | — | — | — | — | 14.0 | ||||||||||||||||||||||||||||||||||
Net earnings | — | — | — | — | — | — | — | 35.1 | — | — | — | 71.9 | 107.0 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | 0.1 | — | — | — | 0.1 | ||||||||||||||||||||||||||||||||||
Unrealized gains on interest rate swaps, net | — | — | — | — | — | — | — | — | 1.1 | — | — | 2.2 | 3.3 | ||||||||||||||||||||||||||||||||||
Tax distributions to members | — | — | — | — | — | — | — | — | — | — | — | (75.3 | ) | (75.3 | ) | ||||||||||||||||||||||||||||||||
Distribution of FNF's ownership interest and related transactions | (70.1 | ) | — | (84.6 | ) | — | 153.5 | — | 774.4 | (46.6 | ) | 0.6 | (1.2 | ) | 46.6 | (1,062.5 | ) | (287.5 | ) | ||||||||||||||||||||||||||||
Balance, September 30, 2017 | — | $ | — | — | $ | — | 153.5 | $ | — | $ | 1,594.9 | $ | 54.2 | $ | 1.0 | — | $ | — | $ | — | $ | 1,650.1 |
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2021 | |||||||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | | | | | | |
| | | | | | | Additional | | | | | other | | | | | | | Total | | Redeemable | ||||
| | Common stock | | paid-in | | Retained | | comprehensive | | Treasury stock | | shareholders’ | | noncontrolling | |||||||||||
|
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | |||||||
Balance, March 31, 2021 |
| 160.0 | | $ | — | | $ | 2,017.0 | | $ | 812.0 | | $ | (37.8) |
| 3.4 | | $ | (176.5) | | $ | 2,614.7 | | $ | 578.0 |
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — | |
| — | |
| (7.5) | |
| — | |
| — |
| — | |
| — | |
| (7.5) | |
| 7.5 |
Grant of restricted shares of common stock |
| — | |
| — | |
| (1.3) | |
| — | |
| — |
| — | |
| 1.3 | |
| — | |
| — |
Forfeitures of restricted shares of common stock |
| — | |
| — | |
| 0.4 | |
| — | |
| — |
| — | |
| (0.4) | |
| — | |
| — |
Tax withholding payments for restricted share vesting |
| — | |
| — | |
| (1.7) | |
| — | |
| — |
| — | |
| — | |
| (1.7) | |
| — |
Vesting of restricted shares granted from treasury stock |
| — | |
| — | |
| 1.0 | |
| — | |
| — |
| — | |
| (1.0) | |
| — | |
| — |
Equity-based compensation expense |
| — | |
| — | |
| 13.1 | |
| — | |
| — |
| — | |
| — | |
| 13.1 | |
| — |
Net earnings (losses) |
| — | |
| — | |
| — | |
| 39.7 | |
| — |
| — | |
| — | |
| 39.7 | |
| (7.5) |
Equity-based compensation expense of unconsolidated affiliates |
| — | |
| — | |
| — | |
| 0.7 | |
| — |
| — | |
| — | |
| 0.7 | |
| — |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| — | |
| (0.1) |
| — | |
| — | |
| (0.1) | |
| — |
Unrealized gains on interest rate swaps, net |
| — | |
| — | |
| — | |
| — | |
| 3.8 |
| — | |
| — | |
| 3.8 | |
| — |
Other comprehensive gains on investments in unconsolidated affiliates |
| — | |
| — | |
| — | |
| — | |
| 1.5 |
| — | |
| — | |
| 1.5 | |
| — |
Balance, June 30, 2021 |
| 160.0 | | $ | — | | $ | 2,021.0 | | $ | 852.4 | | $ | (32.6) |
| 3.4 | | $ | (176.6) | | $ | 2,664.2 | | $ | 578.0 |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated other | | | | | | | | | |
| | Common stock | | Additional | | Retained | | comprehensive | | Treasury stock | | Total shareholders’ | ||||||||||
|
| Shares |
| $ |
| paid-in capital |
| earnings |
| loss |
| Shares |
| $ |
| equity | ||||||
Balance March 31, 2020 |
| 153.0 | | $ | — | | $ | 1,562.7 | | $ | 540.0 | | $ | (41.0) |
| 3.0 | | $ | (142.1) | | $ | 1,919.6 |
Issuance of common stock, net of underwriters' discount and issuance costs | | 7.1 | | | — | | | 484.2 | | | — | | | — | | — | | | — | | | 484.2 |
Grant of restricted shares of common stock |
| — | |
| — | |
| (0.1) | |
| — | |
| — |
| — | |
| 0.1 | |
| — |
Forfeitures of restricted shares of common stock |
| — | |
| — | |
| 0.1 | |
| — | |
| — |
| — | |
| (0.1) | |
| — |
Tax withholding payments for restricted share vesting |
| — | |
| — | |
| (1.5) | |
| — | |
| — |
| — | |
| — | |
| (1.5) |
Vesting of restricted shares granted from treasury stock |
| — | |
| — | |
| 1.0 | |
| — | |
| — |
| — | |
| (1.0) | |
| — |
Equity-based compensation expense |
| — | |
| — | |
| 9.5 | |
| — | |
| — |
| — | |
| — | |
| 9.5 |
Net earnings |
| — | |
| — | |
| — | |
| 39.1 | |
| — |
| — | |
| — | |
| 39.1 |
Equity-based compensation expense of unconsolidated affiliates |
| — | |
| — | |
| — | |
| 3.2 | |
| — |
| — | |
| — | |
| 3.2 |
Unrealized gains on interest rate swaps, net |
| — | |
| — | |
| — | |
| — | |
| 0.6 |
| — | |
| — | |
| 0.6 |
Other comprehensive loss on investments in unconsolidated affiliates |
| — | |
| — | |
| — | |
| — | |
| (1.5) |
| — | |
| — | |
| (1.5) |
Balance, June 30, 2020 |
| 160.1 | | $ | — | | $ | 2,055.9 | | $ | 582.3 | | $ | (41.9) |
| 3.0 | | $ | (143.1) | | $ | 2,453.2 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Cash Flows
(In millions)
Nine months ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net earnings | $ | 107.0 | $ | 98.7 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 154.2 | 154.2 | |||||
Amortization of debt issuance costs, bond premium and original issue discount | 2.5 | 2.0 | |||||
Loss on extinguishment of debt, net | 12.6 | — | |||||
Deferred income taxes, net | 4.8 | 3.7 | |||||
Equity-based compensation | 14.2 | 9.5 | |||||
Changes in assets and liabilities, net of acquired assets and liabilities: | |||||||
Trade and other receivables, including receivables from related parties | (19.9 | ) | (23.1 | ) | |||
Prepaid expenses and other assets | 3.1 | (7.0 | ) | ||||
Deferred contract costs | (35.6 | ) | (41.1 | ) | |||
Deferred revenues | 27.6 | 15.8 | |||||
Trade accounts payable and other accrued liabilities, including accrued compensation and benefits | (30.7 | ) | (2.2 | ) | |||
Net cash provided by operating activities | 239.8 | 210.5 | |||||
Cash flows from investing activities: | |||||||
Additions to property and equipment | (5.3 | ) | (24.0 | ) | |||
Additions to computer software | (37.1 | ) | (31.9 | ) | |||
Business acquisitions, net of cash acquired | — | (150.2 | ) | ||||
Other investing activities | (4.0 | ) | — | ||||
Net cash used in investing activities | (46.4 | ) | (206.1 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings | 400.0 | 55.0 | |||||
Senior Notes redemption | (390.0 | ) | — | ||||
Senior Notes redemption fee | (18.8 | ) | — | ||||
Debt service payments | (25.9 | ) | (138.0 | ) | |||
Distributions to members | (75.3 | ) | (48.5 | ) | |||
Purchases of treasury stock | (46.6 | ) | — | ||||
Capital lease payments | (11.6 | ) | — | ||||
Tax withholding payments for restricted share vesting | (4.3 | ) | — | ||||
Debt issuance costs | (8.6 | ) | — | ||||
Net cash used in financing activities | (181.1 | ) | (131.5 | ) | |||
Net increase (decrease) in cash and cash equivalents | 12.3 | (127.1 | ) | ||||
Cash and cash equivalents, beginning of period | 133.9 | 186.0 | |||||
Cash and cash equivalents, end of period | $ | 146.2 | $ | 58.9 | |||
Supplemental cash flow information: | |||||||
Interest paid | $ | (45.2 | ) | $ | (39.6 | ) | |
Income taxes paid | $ | (13.6 | ) | $ | (16.0 | ) |
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2021 | |||||||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | | | | | | |
| | | | | | | Additional | | | | | other | | | | | | | Total | | Redeemable | ||||
| | Common stock | | paid-in | | Retained | | comprehensive | | Treasury stock | | shareholders’ | | noncontrolling | |||||||||||
|
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | |||||||
Balance, December 31, 2020 |
| 160.1 | | $ | — | | $ | 2,053.7 | | $ | 757.4 | | $ | (38.8) |
| 3.1 | | $ | (144.6) | | $ | 2,627.7 | | $ | 578.0 |
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — | |
| — | |
| (16.1) | |
| — | |
| — |
| — | |
| — | |
| (16.1) | |
| 16.1 |
Grant of restricted shares of common stock |
| — | |
| — | |
| (26.6) | |
| — | |
| — |
| (0.5) | |
| 26.6 | |
| — | |
| — |
Forfeitures of restricted shares of common stock |
| — | |
| — | |
| 0.5 | |
| — | |
| — |
| — | |
| (0.5) | |
| — | |
| — |
Tax withholding payments for restricted share vesting |
| (0.1) | |
| — | |
| (24.4) | |
| — | |
| — |
| — | |
| — | |
| (24.4) | |
| — |
Vesting of restricted shares granted from treasury stock |
| — | |
| — | |
| 11.4 | |
| — | |
| — |
| 0.2 | |
| (11.4) | |
| — | |
| — |
Equity-based compensation expense |
| — | |
| — | |
| 22.5 | |
| — | |
| — |
| — | |
| — | |
| 22.5 | |
| — |
Net earnings (losses) |
| — | |
| — | |
| — | |
| 93.8 | |
| — |
| — | |
| — | |
| 93.8 | |
| (16.1) |
Equity-based compensation expense of unconsolidated affiliates |
| — | |
| — | |
| — | |
| 1.2 | |
| — |
| — | |
| — | |
| 1.2 | |
| — |
Purchases of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — |
| 0.6 | |
| (46.7) | |
| (46.7) | |
| — |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| — | |
| (0.4) |
| — | |
| — | |
| (0.4) | |
| — |
Unrealized gains on interest rate swaps, net |
| — | |
| — | |
| — | |
| — | |
| 8.2 |
| — | |
| — | |
| 8.2 | |
| — |
Other comprehensive loss on investments in unconsolidated affiliates |
| — | |
| — | |
| — | |
| — | |
| (1.6) |
| — | |
| — | |
| (1.6) | |
| — |
Balance, June 30, 2021 |
| 160.0 | | $ | — | | $ | 2,021.0 | | $ | 852.4 | | $ | (32.6) |
| 3.4 | | $ | (176.6) | | $ | 2,664.2 | | $ | 578.0 |
| | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2020 | ||||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | | | | | Additional | | | | | other | | | | | | | Total | |||
| | Common stock | | paid-in | | Retained | | comprehensive | | Treasury stock | | shareholders’ | ||||||||||
|
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity | ||||||
Balance December 31, 2019 |
| 153.1 | | $ | — | | $ | 1,586.8 | | $ | 490.6 | | $ | (20.2) |
| 3.4 | | $ | (158.7) | | $ | 1,898.5 |
Effect of CECL adoption |
| — | |
| — | |
| — | |
| (1.1) | |
| — |
| — | |
| — | |
| (1.1) |
Adjusted balance at January 1, 2020 |
| 153.1 | |
| — | |
| 1,586.8 | |
| 489.5 | |
| (20.2) |
| 3.4 | |
| (158.7) | |
| 1,897.4 |
Issuance of common stock, net of underwriters' discount and issuance costs |
| 7.1 | |
| — | |
| 484.2 | |
| — | |
| — |
| — | |
| — | |
| 484.2 |
Grant of restricted shares of common stock |
| — | |
| — | |
| (24.6) | |
| — | |
| — |
| (0.5) | |
| 24.6 | |
| — |
Forfeitures of restricted shares of common stock |
| — | |
| — | |
| 0.3 | |
| — | |
| — |
| — | |
| (0.3) | |
| — |
Tax withholding payments for restricted share vesting |
| (0.1) | |
| — | |
| (19.7) | |
| — | |
| — |
| 0.1 | |
| — | |
| (19.7) |
Vesting of restricted shares granted from treasury stock |
| — | |
| — | |
| 8.7 | |
| — | |
| — |
| — | |
| (8.7) | |
| — |
Equity-based compensation expense |
| — | |
| — | |
| 20.2 | |
| — | |
| — |
| — | |
| — | |
| 20.2 |
Net earnings |
| — | |
| — | |
| — | |
| 89.2 | |
| — |
| — | |
| — | |
| 89.2 |
Equity-based compensation expense of unconsolidated affiliates |
| — | |
| — | |
| — | |
| 3.6 | |
| — |
| — | |
| — | |
| 3.6 |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| — | |
| (0.2) |
| — | |
| — | |
| (0.2) |
Unrealized losses on interest rate swaps, net |
| — | |
| — | |
| — | |
| — | |
| (19.8) |
| — | |
| — | |
| (19.8) |
Other comprehensive loss on investments in unconsolidated affiliates |
| — | |
| — | |
| — | |
| — | |
| (1.7) |
| — | |
| — | |
| (1.7) |
Balance, June 30, 2020 |
| 160.1 | | $ | — | | $ | 2,055.9 | | $ | 582.3 | | $ | (41.9) |
| 3.0 | | $ | (143.1) | | $ | 2,453.2 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| | | | | | |
|
| Six months ended June 30, | ||||
| | 2021 | | 2020 | ||
Cash flows from operating activities: |
| |
| | | |
Net earnings | | $ | 77.7 | | $ | 89.2 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
|
| | |
|
Depreciation and amortization | |
| 178.2 | | | 116.3 |
Amortization of debt issuance costs and original issue discount | |
| 2.0 | | | 1.4 |
Loss on extinguishment of debt | | | 2.5 | | | — |
Deferred income taxes, net | |
| (3.9) | | | 0.9 |
Equity in (earnings) losses of unconsolidated affiliates, net of tax | |
| (1.4) | | | 20.4 |
Equity-based compensation | |
| 22.5 | | | 20.2 |
Changes in assets and liabilities, net of acquired assets and liabilities: | |
|
| | |
|
Trade receivables, including receivables from related parties | |
| (10.7) | | | 4.9 |
Prepaid expenses and other assets | |
| (36.8) | | | (13.9) |
Deferred contract costs | |
| (24.1) | | | (26.0) |
Deferred revenues | |
| 6.4 | | | (10.2) |
Trade accounts payable and other liabilities | |
| (13.2) | | | (7.9) |
Net cash provided by operating activities | |
| 199.2 | | | 195.3 |
Cash flows from investing activities: | |
|
| | |
|
Additions to property and equipment | |
| (11.5) | | | (12.6) |
Additions to computer software | |
| (45.4) | | | (38.2) |
Business acquisitions, net of cash acquired | |
| (48.3) | | | (50.4) |
Asset acquisitions | |
| (10.0) | | | (15.0) |
Other investing activities | | | (1.2) | | | 8.4 |
Net cash used in investing activities | |
| (116.4) | | | (107.8) |
Cash flows from financing activities: | |
|
| | |
|
Net proceeds from issuance of common stock, before offering expenses | |
| 0 | | | 484.6 |
Costs directly associated with issuance of common stock | |
| 0 | | | (0.4) |
Revolver borrowings | |
| 260.3 | | | 266.6 |
Revolver payments | |
| (210.0) | | | (576.6) |
Term loan borrowings | | | 1.6 | | | — |
Term loan payments | |
| 0 | | | (23.4) |
Purchases of treasury stock | |
| (46.7) | | | — |
Tax withholding payments for restricted share vesting | |
| (24.4) | | | (19.7) |
Finance lease payments | |
| (2.0) | | | (5.8) |
Debt issuance costs paid | |
| (7.6) | | | — |
Net cash (used in) provided by financing activities | |
| (28.8) | | | 125.3 |
Net increase in cash and cash equivalents | |
| 54.0 | | | 212.8 |
Cash and cash equivalents, beginning of period | |
| 34.7 | | | 15.4 |
Cash and cash equivalents, end of period | | $ | 88.7 | | $ | 228.2 |
Supplemental cash flow information: | |
|
| | |
|
Interest paid, net | | $ | (40.0) | | $ | (26.1) |
Income taxes paid, net | | $ | (42.7) | | $ | (5.4) |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1)Basis of Presentation and Overview
The accompanying Condensed Consolidated Financial Statements (Unaudited) of Black Knight, Inc. (“BKI”) and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our" (1) prior to the Distribution (as defined in Note 1 — Basis of Presentation), are to Black Knight Financial Services, Inc., a Delaware corporation, and its subsidiaries ("BKFS") and (2) after the Distribution, are to Black Knight, Inc., a Delaware corporation, and its subsidiaries.
The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the Securities and Exchange Commission ("SEC") on February 24, 2017.
Description of Business
We are a leading provider of integrated software, data and analytics solutions to the mortgage and consumer loan, real estate and capital marketmarkets verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. We believeare committed to being a premier business partner that clients rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class software, services and insights with a relentless commitment to excellence, innovation, integrity and leadership.
Principles of Consolidation
The Condensed Consolidated Financial Statements (Unaudited) include the accounts of BKI, its wholly-owned subsidiaries and non-wholly owned subsidiaries in which we differentiate ourselves byhave a controlling financial interest either through voting rights or means other than voting rights. Intercompany transactions and balances have been eliminated in consolidation. Where our ownership interest in a consolidated subsidiary is less than 100%, the breadthnoncontrolling interests’ share of these non-wholly owned subsidiaries is reported in our Condensed Consolidated Balance Sheets (Unaudited) as a separate component of equity or within temporary equity. The noncontrolling interests’ share of the net earnings (loss) of these non-wholly owned subsidiaries is reported in our Condensed Consolidated Statements of Earnings and depth of our comprehensive, integrated solutions and the insight we provideComprehensive Earnings (Unaudited) as an adjustment to our clients.
We consolidate variable interest entities (“VIEs”) if we are considered the primary beneficiary because we have (a) the power to direct matters that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
Optimal Blue Holdco, LLC (“Optimal Blue Holdco”), a non-wholly owned subsidiary, is considered a VIE. We are the primary beneficiary of Optimal Blue Holdco through our controlling interest and our rights established in the Second Amended and Restated Limited Liability Company Agreement of Optimal Blue Holdco dated November 24, 2020 (the “OB Holdco LLC Agreement”). As such, we control Optimal Blue Holdco and its subsidiaries and consolidate its financial position and results of operations. As of June 30, 2021 and December 31, 2020, we own 60% of Optimal Blue Holdco. Redeemable noncontrolling interests represent the collective 40% equity interest in Optimal Blue Holdco owned by Cannae Holdings, LLC ("Cannae") and affiliates of Thomas H. Lee Partners, L.P. ("THL"). As these redeemable noncontrolling interests provide for redemption features not solely within our control, they are presented outside of shareholders' equity.
Reporting Segments
We conduct our operations through two2 reporting segments: (1) Software Solutions (formerly known as the Technology segment) and (2) Data and Analytics. See further discussion in Note 814 —
6
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
Reclassification
Certain reclassifications have been made to the BKFS merger were canceled for no consideration; and
Cash and cash equivalents are unrestricted and include the following (in millions):
September 30, 2017 | December 31, 2016 | ||||||
Unrestricted: | |||||||
Cash | $ | 87.0 | $ | 129.8 | |||
Cash equivalents | 57.2 | 1.8 | |||||
Total unrestricted cash and cash equivalents | 144.2 | 131.6 | |||||
Restricted cash equivalents (1) | 2.0 | 2.3 | |||||
Total cash and cash equivalents | $ | 146.2 | $ | 133.9 |
| | | | | | |
| | June 30, 2021 |
| December 31, 2020 | ||
Cash | | $ | 16.5 | | $ | 27.1 |
Cash equivalents | |
| 72.2 | |
| 7.6 |
Cash and cash equivalents | | $ | 88.7 | | $ | 34.7 |
Trade Receivables, Net
A summary of Trade receivables, net of allowance for doubtful accounts, as of September 30, 2017 and December 31, 2016credit losses is as follows (in millions):
| | | | | | |
|
| | | | | |
| | June 30, 2021 |
| December 31, 2020 | ||
Trade receivables — billed | | $ | 137.5 | | $ | 136.4 |
Trade receivables — unbilled | |
| 48.4 | |
| 47.9 |
Trade receivables | |
| 185.9 | |
| 184.3 |
Allowance for credit losses | |
| (2.3) | |
| (2.1) |
Trade receivables, net | | $ | 183.6 | | $ | 182.2 |
In addition to the amounts above, we have unbilled receivables that we do not expect to collect within the next year included in Other non-current assets in our Condensed Consolidated Balance Sheets (Unaudited). Billings for these receivables are based on contractual terms.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in millions):
| | | | | | |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Prepaid expenses | | $ | 40.1 | | $ | 39.7 |
Contract assets, net | |
| 22.0 | |
| 20.9 |
Income tax receivables | | | 14.4 | | | 2.1 |
Other current assets | |
| 9.8 | |
| 7.7 |
Prepaid expenses and other current assets | | $ | 86.3 | | $ | 70.4 |
7
September 30, 2017 | December 31, 2016 | ||||||
Trade receivables — billed | $ | 129.1 | $ | 115.4 | |||
Trade receivables — unbilled | 42.4 | 42.6 | |||||
Total trade receivables | 171.5 | 158.0 | |||||
Allowance for doubtful accounts | (2.3 | ) | (2.2 | ) | |||
Total trade receivables, net | $ | 169.2 | $ | 155.8 |
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
Other Non-Current Assets
Other non-current assets consist of the minimum lease payments, which was $8.4 million (net of imputed interest of $0.1 million).following (in millions):
| | | | | | |
| | June 30, 2021 |
| December 31, 2020 | ||
Contract assets, net | | $ | 61.9 | | $ | 56.5 |
Property records database | | | 60.5 | | | 60.5 |
Right-of-use assets(1) | |
| 34.8 | |
| 41.1 |
Deferred compensation plan related assets | |
| 24.0 | |
| 19.5 |
Contract credits | |
| 23.2 | |
| 5.0 |
Prepaid expenses | |
| 5.6 | |
| 4.9 |
Other | |
| 3.2 | |
| 5.8 |
Other non-current assets | | $ | 213.2 | | $ | 193.3 |
(1) | Includes non-cash additions for right-of-use assets obtained in exchange for lease liabilities of $0.1 million and $4.5 million for the six months ended June 30, 2021 and 2020, respectively. |
Trade Accounts Payable and $10.0 million (net of imputed interest of $0.1 million) as of September 30, 2017 and December 31, 2016, respectively, and is included in Property and equipment, net on the Condensed Consolidated Balance Sheets (Unaudited). The remaining capital lease obligation of $2.2 million and $5.0 million as of September 30, 2017 and December 31, 2016, respectively, is included in Other Accrued Liabilities
Trade accounts payable and other accrued liabilities onconsist of the Condensed Consolidated Balance Sheets (Unaudited). The non-cash investing and financing activity forfollowing (in millions):
| | | | | | |
| | June 30, 2021 |
| December 31, 2020 | ||
Accrued interest | | $ | 12.2 | | $ | 12.8 |
Lease liabilities, current | |
| 9.9 | |
| 13.5 |
Trade accounts payable | |
| 9.1 | |
| 8.9 |
Other taxes payable and accrued | |
| 8.6 | |
| 10.7 |
Accrued client liabilities | | | 3.3 | | | 6.4 |
Income taxes payable | | | 1.4 | | | 13.6 |
Other | |
| 29.3 | |
| 22.2 |
Trade accounts payable and accrued liabilities | | $ | 73.8 | | $ | 88.1 |
Deferred Revenues
During the ninethree months ended SeptemberJune 30, 20172021 and 2016 was $2.22020, revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $12.1 million and $8.4$12.7 million, respectively, and relates to$29.8 million and $28.3 million, respectively, during the unpaid portionsix months ended June 30, 2021 and 2020.
Depreciation and Amortization
Depreciation and amortization includes the following (in millions):
| | | | | | | | | | | | |
| | Three months ended June 30, |
| Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Computer software | | $ | 32.7 | | $ | 26.4 | | $ | 63.3 | | $ | 52.2 |
Other intangible assets | |
| 39.1 | | | 13.4 | |
| 77.9 | |
| 26.4 |
Deferred contract costs | |
| 8.6 | | | 8.7 | |
| 16.8 | |
| 17.6 |
Property and equipment | |
| 10.0 | | | 10.1 | |
| 20.2 | |
| 20.1 |
Total | | $ | 90.4 | | $ | 58.6 | | $ | 178.2 | | $ | 116.3 |
8
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Property and equipment | $ | 7.3 | $ | 7.2 | $ | 21.7 | $ | 21.4 | |||||||
Computer software | 21.2 | 20.6 | 62.4 | 57.5 | |||||||||||
Other intangible assets | 16.9 | 20.5 | 50.9 | 56.2 | |||||||||||
Deferred contract costs | 5.9 | 8.5 | 19.2 | 19.1 | |||||||||||
Total | $ | 51.3 | $ | 56.8 | $ | 154.2 | $ | 154.2 |
(3)Business Acquisitions
2021 Acquisitions
On MayMarch 16, 2016, Black Knight2021, we completed the acquisition of eLynxthe technology assets and business of NexSpring Financial, LLC (“NexSpring”), which is reported within our Software Solutions segment, and is expected to broaden our ability to serve mortgage brokers.
On May 17, 2021, we completed the acquisition of 100% of the equity interests in eMBS, Inc. (“eMBS”), a leading data and analytics aggregator for residential mortgage-backed securities, which is reported within our Data & Analytics segment, and is expected to solidify and further expand our market leadership in solutions and data for agency-backed securities.
On July 7, 2021, we completed the acquisition of 100% of the equity interests in TOMN Holdings, Inc. ("eLynx"and its subsidiaries (“Top of Mind”). , the developer of SurefireSM, a leading customer relationship management and marketing automation system for the mortgage industry. SurefireSM will be integrated with our Empower® loan origination system and reported within our Software Solutions segment.
2020 Optimal Blue Acquisition
On September 15, 2020, we completed the acquisition of 100% of the equity interests in Optimal Blue and certain affiliates, a leading provider of secondary market solutions and actionable data services, funded with cash on hand, debt financing and investments from co-investors Cannae and THL. Optimal Blue is reported within our Software Solutions segment because it enhances our robust set of software solutions and includes additional product, pricing and eligibility capabilities.
The following table summarizes the total purchase price was allocated toconsideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The fair value of the acquired Computer software and Other intangible assets was determined using a third-party valuation based on significant estimates and assumptions, including level 3 inputs, which are judgmental in nature. These estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting the risk inherent in the future cash flows and future market prices. These estimates for the eLynx acquisition were finalized in the first quarter of 2017. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed on the acquisition date.
9
Goodwill | $ | 3.0 | |
Computer software | (2.6 | ) | |
Accrued compensation and benefits | (0.3 | ) | |
Other intangible assets | (0.1 | ) |
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
| | | | | | | | |
| 2021 | | 2020 | |||||
| Top of Mind(2) | | Others(3) | | Optimal Blue(4) | |||
Cash paid | $ | 258.8 | | $ | 48.5 | | $ | 1,828.3 |
Contingent consideration(1) | | — | | | 4.4 | | | — |
Less: cash acquired |
| (4.7) | |
| (0.2) | |
| (29.3) |
Total consideration, net | $ | 254.1 | | $ | 52.7 | | $ | 1,799.0 |
| | | | | | | | |
Trade receivables | $ | 2.0 | | $ | 0.4 | | $ | 11.3 |
Computer software |
| 28.8 | |
| 6.1 | |
| 79.7 |
Other intangible assets |
| 69.0 | |
| 10.2 | |
| 610.8 |
Goodwill |
| 178.6 | |
| 36.1 | |
| 1,206.1 |
Other current and non-current assets |
| 2.3 | |
| 1.1 | |
| 13.3 |
Total assets acquired |
| 280.7 | |
| 53.9 | |
| 1,921.2 |
Deferred income taxes |
| 18.5 | |
| — | |
| 101.4 |
Current and other non-current liabilities |
| 8.1 | |
| 1.2 | |
| 20.8 |
Total liabilities assumed |
| 26.6 | |
| 1.2 | |
| 122.2 |
Net assets acquired | $ | 254.1 | | $ | 52.7 | | $ | 1,799.0 |
(1) | The estimated contingent consideration is to be paid in cash based on NexSpring revenues recognized over the three-year period subsequent to the acquisition. Refer to Note 9 – Fair Value Measurement for additional information. |
(2) | On July 7, 2021, we acquired Top of Mind. As such, these amounts are not recorded in our Condensed Consolidated Financial Statements (Unaudited) as of June 30, 2021. The fair value of all acquired assets and assumed liabilities is preliminary and subject to adjustments as we complete our valuation process. |
(3) | Includes the NexSpring and eMBS acquisitions. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Computer software, Other intangible assets, including client relationship assets, and contingent consideration. |
(4) | During the three months ended June 30, 2021, we recorded a measurement period adjustment of $0.1 million for certain pre-acquisition tax liabilities. The fair value of Goodwill and certain assumed liabilities, including estimated liabilities for pre-acquisition tax exposure, is preliminary and subject to adjustments as we complete our valuation process. |
The preliminary amounts assigned to intangible assets by type for our acquisitions of NexSpring and eMBS are summarized in the table below:
| | | | | |
| |
| |
| Weighted average |
| | Gross | | estimated life | |
|
| carrying value |
| (in years) | |
Computer software | | $ | 6.1 |
| 5 |
Other intangible assets: | |
|
|
|
|
Client relationships | |
| 9.4 |
| 10 |
Trade names | |
| 0.2 |
| 3 |
Non-compete agreements | |
| 0.6 |
| 3 |
Other intangible assets | |
| 10.2 |
|
|
Total gross carrying value | | $ | 16.3 |
|
|
(4)Investments in Unconsolidated Affiliates
Dun & Bradstreet Holdings, Inc. (“DNB”) is a reviewglobal leader in commercial data and analytics that provides various services helping companies improve their operational performance. On July 6, 2020, DNB, previously a wholly-owned subsidiary of accounting policiesStar Parent, L.P., a Delaware limited partnership (“Star Parent”), closed its initial public offering (the “DNB IPO”) and practices, evaluating differences from applyingconcurrent private placement (the “DNB Private Placement”). In connection with the requirementsDNB IPO and DNB Private Placement, our limited partner interests in Star Parent were exchanged for 54.8 million shares of DNB common stock, which represented ownership of 13.0% of DNB.
We hold less than 20% of the new standard to our contracts and business practices and assessing the need for changes to our processes, accounting systems and designoutstanding common equity of internal controls. Based upon our assessment to date, we currently do not anticipate a material change to the pattern of revenue recognition related to revenue earned from the majority of our Software Solutions segment hosted software arrangements, Data and Analytics segment arrangements with transaction or volume-based fees or perpetual license arrangements in our Software Solutions and Data and Analytics segments. However, due to the complexity of certain of our contracts, including contracts for multiple products and services related to each of our segments, the final determination will be dependent on contract-specific terms.
10
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
certain other DNB investors pursuant to which we agreed to collectively vote together on matters related to the election of recognition, measurement, presentationDNB directors for a period of three years following the initial public offering of DNB and disclosureour shared Chief Executive Officer.
On January 8, 2021, DNB completed its acquisition of Bisnode Business Information Group AB (the “Bisnode acquisition”). In connection with the Bisnode acquisition, DNB issued 6.2 million shares of common stock, which resulted in a decrease in our ownership interest in DNB to 12.8%.
As of June 30, 2021, we have invested an aggregate of $492.6 million in DNB. As of June 30, 2021, DNB’s closing share price was $21.37 and the fair value of our investment in DNB was $1,172.1 million before tax.
Summarized consolidated financial information for financial instruments. This ASUDNB (Successor) and Star Parent (Predecessor) is effectivepresented below (in millions):
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Current assets | | $ | 624.2 | | $ | 874.4 |
Non-current assets | |
| 9,236.2 | |
| 8,345.9 |
Total assets | | $ | 9,860.4 | | $ | 9,220.3 |
| | | | | | |
Current liabilities, including short-term debt | | $ | 972.9 | | $ | 828.1 |
Non-current liabilities | |
| 5,238.9 | |
| 4,808.3 |
Total liabilities | |
| 6,211.8 | |
| 5,636.4 |
Total equity | |
| 3,648.6 | |
| 3,583.9 |
Total liabilities and shareholders' equity | | $ | 9,860.4 | | $ | 9,220.3 |
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
Revenues | | $ | 520.9 | | $ | 418.7 | | $ | 1,025.4 | | $ | 814.4 |
Loss before provision for income taxes and equity in net income of affiliates | |
| (8.5) | |
| (203.0) | |
| (42.2) | |
| (203.6) |
Net loss | |
| (50.8) | |
| (174.7) | |
| (74.1) | |
| (100.4) |
Net loss attributable to DNB (Successor)/Star Parent (Predecessor) | |
| (51.7) | |
| (208.0) | |
| (76.7) | |
| (166.1) |
Effective January 1, 2021, DNB eliminated the one-month reporting lag for its subsidiaries outside North America and aligned the year-end for all of its subsidiaries to December 31. DNB applied this change in fiscal years beginning after December 15, 2017. Early adoptiontheir accounting policy retrospectively. The effect of this ASU ischange in accounting policy did not permitted. We do not expect this update to have a material effect onimpact to our results of operations or financial condition and was included in our current period accounting for our investment in DNB. The summarized consolidated financial position.
Equity in (losses) earnings of unconsolidated affiliates, net of tax consists of the following (in millions):
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Equity in losses of unconsolidated affiliates, net of tax | | $ | (5.0) | | $ | (31.0) | | $ | (8.5) | | $ | (25.4) |
Non-cash gain related to DNB's issuance of common stock, net of tax | |
| — | |
| — | |
| 9.9 | |
| — |
Sale of an equity method investment, net of tax | | | — | | | 5.0 | | | — | | | 5.0 |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | | $ | (5.0) | | $ | (26.0) | | $ | 1.4 | | $ | (20.4) |
(5)Earnings Per Share
Diluted net earnings per share is computed by dividing Net earnings attributable to Black Knight byincludes the weighted-average numbereffect of shares of common stock outstanding during the period.
11
Table of BKFS Class B common stock. The numerator in the Contents
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
diluted net earnings per share calculation is adjusted to reflect our income tax expense at an expected effective tax rate assumingcalculations because the conversion of the shares of BKFS Class B common stock into shares of BKFS Class A common stock on a one-for-one basis, prior to the Distribution, for the nine months ended September 30, 2017. The expected effective tax rate for the nine months ended September 30, 2017 was 41.1%, including certain discrete items recorded during the period. The denominator includes approximately 84.4 million shares of BKFS Class B common stock outstanding for the nine months ended September 30, 2017. However, the approximately 83.7 million shares of BKFS Class B common stock for the three months ended September 30, 2017 and 84.8 million shares of BKFS Class B common stock for the three and nine months ended September 30, 2016 have been excluded in computing diluted net earnings per share because including them on an "if-converted" basis would have an anti-dilutive effect. The denominator also includes the dilutive effect of approximately 0.6 million shares of unvested restricted shares of common stock for the three and nine months ended September 30, 2017, respectively, and approximately 2.0 million and 1.9 million shares for the three and nine months ended September 30, 2016, respectively.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Basic: | |||||||||||||||
Net earnings attributable to Black Knight | $ | 14.7 | $ | 11.2 | $ | 35.1 | $ | 34.0 | |||||||
Shares used for basic net earnings per share: | |||||||||||||||
Weighted average shares of common stock outstanding | 67.9 | 65.9 | 67.7 | 65.9 | |||||||||||
Basic net earnings per share | $ | 0.22 | $ | 0.17 | $ | 0.52 | $ | 0.52 | |||||||
Diluted: | |||||||||||||||
Earnings before income taxes | $ | 131.3 | |||||||||||||
Income tax expense excluding the effect of noncontrolling interests | 54.0 | ||||||||||||||
Net earnings | $ | 77.3 | |||||||||||||
Net earnings attributable to Black Knight | $ | 14.7 | $ | 11.2 | $ | 34.0 | |||||||||
Shares used for diluted net earnings per share: | |||||||||||||||
Weighted average shares of common stock outstanding | 67.9 | 65.9 | 67.7 | 65.9 | |||||||||||
Dilutive effect of unvested restricted shares of common stock | 0.6 | 2.0 | 0.6 | 1.9 | |||||||||||
Weighted average shares of Class B common stock outstanding | — | — | 84.4 | — | |||||||||||
Weighted average shares of common stock, diluted | 68.5 | 67.9 | 152.7 | 67.8 | |||||||||||
Diluted net earnings per share | $ | 0.21 | $ | 0.16 | $ | 0.51 | $ | 0.50 |
| | | | | | | | | | | | |
|
| Three months ended June 30, | | Six months ended June 30, | ||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Basic: |
| |
|
| |
| | |
|
| |
|
Net earnings attributable to Black Knight | | $ | 39.7 | | $ | 39.1 | | $ | 93.8 | | $ | 89.2 |
Shares used for basic net earnings per share: | |
|
| |
|
| |
|
| |
|
|
Weighted average shares of common stock outstanding | |
| 155.4 | |
| 149.2 | |
| 155.5 | |
| 148.6 |
Basic net earnings per share | | $ | 0.26 | | $ | 0.26 | | $ | 0.60 | | $ | 0.60 |
| | | | | | | | | | | | |
Diluted: | |
|
| |
|
| |
|
| |
|
|
Net earnings attributable to Black Knight | | $ | 39.7 | | $ | 39.1 | | $ | 93.8 | | $ | 89.2 |
Shares used for diluted net earnings per share: | |
|
| |
|
| |
|
| |
|
|
Weighted average shares of common stock outstanding | |
| 155.4 | |
| 149.2 | |
| 155.5 | |
| 148.6 |
Dilutive effect of unvested restricted shares of common stock | |
| 0.3 | |
| 0.8 | |
| 0.3 | |
| 0.7 |
Weighted average shares of common stock, diluted | |
| 155.7 | |
| 150.0 | |
| 155.8 | |
| 149.3 |
Diluted net earnings per share | | $ | 0.25 | | $ | 0.26 | | $ | 0.60 | | $ | 0.60 |
(6)Related Party Transactions
September 30, 2017 | December 31, 2016 | ||||||||||
Shares | Ownership Percentage | Shares | Ownership Percentage | ||||||||
Black Knight, Inc. common stock: | |||||||||||
THL and its affiliates | 35.1 | 22.9 | % | — | — | % | |||||
Restricted shares | 1.9 | 1.2 | % | — | — | % | |||||
Other, including those publicly traded | 116.5 | 75.9 | % | — | — | % | |||||
Total shares of Black Knight, Inc. common stock | 153.5 | 100.0 | % | — | — | % | |||||
BKFS Class A common stock: | |||||||||||
THL and its affiliates | — | — | % | 39.3 | 25.5 | % | |||||
Restricted shares | — | — | % | 2.9 | 1.9 | % | |||||
Other, including those publicly traded | — | — | % | 26.9 | 17.5 | % | |||||
Total shares of Class A common stock | — | — | % | 69.1 | 44.9 | % | |||||
BKFS Class B common stock: | |||||||||||
FNF subsidiary | — | — | % | 83.3 | 54.1 | % | |||||
THL and its affiliates | — | — | % | 1.5 | 1.0 | % | |||||
Total shares of Class B common stock | — | — | % | 84.8 | 55.1 | % | |||||
Total shares of BKFS common stock | — | — | % | 153.9 | 100.0 | % |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 13.8 | $ | 19.2 | $ | 43.2 | $ | 53.4 | |||||||
Operating expenses | 3.4 | 3.8 | 9.8 | 11.5 | |||||||||||
Guarantee fee | — | 0.9 | 1.2 | 2.9 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating expenses | $ | — | $ | 0.2 | $ | 0.2 | $ | 1.0 | |||||||
Software and software-related purchases | — | — | — | 1.1 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Data and analytics services | $ | 5.7 | $ | 12.3 | $ | 18.4 | $ | 34.2 | |||||||
Servicing, origination and default software services | 8.1 | 6.9 | 24.8 | 19.2 | |||||||||||
Total related party revenues | $ | 13.8 | $ | 19.2 | $ | 43.2 | $ | 53.4 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Data entry, indexing services and other operating expenses | $ | 1.4 | $ | 2.4 | $ | 3.9 | $ | 7.3 | |||||||
Corporate services | 2.4 | 2.4 | 7.4 | 7.6 | |||||||||||
Technology and corporate services | (0.4 | ) | (0.8 | ) | (1.3 | ) | (2.4 | ) | |||||||
Total related party expenses, net | $ | 3.4 | $ | 4.0 | $ | 10.0 | $ | 12.5 |
We believe the amounts earned from or charged by us under each of the foregoingfollowing arrangements are fair and reasonable. We believe our service arrangements are priced within the range of prices we offer to third parties, except for certain corporate services provided to an FNF subsidiary and certain corporate services provided by FNF, which are at cost. However, theThe amounts we earned or that were charged under these arrangements were not negotiated at arm's length and may not represent the terms that we might have obtained from an unrelated third party.
DNB
DNB is considered to be a related party primarily due to the combination of our investment in DNB and our shared Chief Executive Officer. Refer to Note 4 — Investments in Unconsolidated Affiliates for additional details.
During the three months ended June 30, 2021, we entered into a five-year agreement with DNB to provide them with certain products and data over the term of the following (in millions):
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
Principal | Debt Issuance Costs | Discount | Total | Principal | Debt Issuance Costs | Premium (Discount) | Total | ||||||||||||||||||||||||
Term A Loan | $ | 1,017.1 | $ | (7.5 | ) | $ | — | $ | 1,009.6 | $ | 740.0 | $ | (7.0 | ) | $ | — | $ | 733.0 | |||||||||||||
Term B Loan | 391.0 | (2.6 | ) | (1.5 | ) | 386.9 | 394.0 | (3.4 | ) | (0.8 | ) | 389.8 | |||||||||||||||||||
Revolving Credit Facility | 150.0 | (4.5 | ) | — | 145.5 | 50.0 | (3.7 | ) | — | 46.3 | |||||||||||||||||||||
Senior Notes, issued at par | — | — | — | — | 390.0 | — | 11.1 | 401.1 | |||||||||||||||||||||||
Total long-term debt | 1,558.1 | (14.6 | ) | (1.5 | ) | 1,542.0 | 1,574.0 | (14.1 | ) | 10.3 | 1,570.2 | ||||||||||||||||||||
Less: Current portion of long-term debt | 55.5 | (0.4 | ) | — | 55.1 | 64.0 | (0.6 | ) | — | 63.4 | |||||||||||||||||||||
Long-term debt, net of current portion | $ | 1,502.6 | $ | (14.2 | ) | $ | (1.5 | ) | $ | 1,486.9 | $ | 1,510.0 | $ | (13.5 | ) | $ | 10.3 | $ | 1,506.8 |
2017 (remaining) | $ | 13.9 | |
2018 | 55.5 | ||
2019 | 81.3 | ||
2020 | 107.0 | ||
2021 | 132.7 | ||
Thereafter | 1,167.7 | ||
Total | $ | 1,558.1 |
Trasimene
Trasimene Capital Management, LLC ("Trasimene") was considered a related party because the former Chairman of our Board of Directors (the “Board”) owns a controlling interest in Trasimene. As of June 16, 2021, our former Chairman retired from the Board and Trasimene is no longer considered a related party. During the periods April 1, 2021 through June 16, 2021 and January 1, 2021 through June 16, 2021 we recognized $0.2 million and $0.5 million, respectively, in fees with Trasimene related to acquisitions, which are included in Transition and integration costs in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).
12
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
| | | | | | | | | |
|
| Software |
| Data and |
| | | ||
| | Solutions | | Analytics | | Total | |||
Balance, December 31, 2020 | | $ | 3,415.8 | | $ | 197.6 | | $ | 3,613.4 |
NexSpring acquisition (Note 3) | |
| 18.2 | |
| 0 | |
| 18.2 |
eMBS acquisition (Note 3) | | | 0 | | | 17.9 | | | 17.9 |
Optimal Blue acquisition (Note 3) | | | 0.1 | | | 0 | | | 0.1 |
Balance, June 30, 2021 | | $ | 3,434.1 | | $ | 215.5 | | $ | 3,649.6 |
The increase in Goodwill related to our NexSpring and Revolver Refinancing
(8)Long-Term Debt
Long-term debt consists of the following (in millions):
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Term A Loan | | $ | 1,150.0 | | $ | 1,148.4 |
Revolving Credit Facility | |
| 98.0 | |
| 47.7 |
Senior Notes | |
| 1,000.0 | |
| 1,000.0 |
Other | |
| 9.0 | |
| 17.6 |
Total long-term debt principal | |
| 2,257.0 | |
| 2,213.7 |
Less: current portion of long-term debt | |
| (19.0) | |
| (73.0) |
Long-term debt before debt issuance costs and discount | |
| 2,238.0 | |
| 2,140.7 |
Less: debt issuance costs and discount | |
| (21.7) | |
| (18.8) |
Long-term debt, net of current portion | | $ | 2,216.3 | | $ | 2,121.9 |
As of June 30, 2021, principal maturities, including payments related to our finance leases, are as follows (in millions):
| | | |
2021 |
| $ | 1.6 |
2022 | | | 31.9 |
2023 | |
| 33.0 |
2024 | |
| 57.5 |
2025 | |
| 57.5 |
Thereafter | |
| 2,075.5 |
Total | | $ | 2,257.0 |
Credit Agreement
On April 26, 2017,30, 2018, our indirect subsidiary BKIS entered into a Second Amendment toan amended and restated credit and guaranty agreement (the “2018 Credit and Guaranty Agreement (the “Credit Agreement Second Amendment”Agreement”) with the JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto. The 2018 Credit Agreement Second Amendment increasesprovided for (i) a $1,250.0 million term loan A facility and (ii) a $750.0 million revolving credit facility.
13
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Debt Refinancing
On March 10, 2021, BKIS entered into a second amended and restated credit and guaranty agreement (the “2021 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, the aggregate principal amount ofguarantors party thereto, the other agents party thereto and the lenders party thereto.
The 2021 Credit Agreement provides for (i) a $1,150.0 million term loan A facility (the “Term A Loan”) and (ii) a $1,000.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term A Loan, by $300.0 millioncollectively, the “Facilities”), the proceeds of which were used to $1,030.0 million and (ii)repay in full the aggregate principal amount of commitmentsindebtedness outstanding under the Revolving Credit Facility by $100.0 million to $500.0 million. The2018 Credit Agreement Second Amendment also reduces the pricing applicableand to the loans under the Term A Loanpay related fees and Revolving Credit Facility by 25 basis points and reduces the unused commitment fee applicable to the Revolving Credit Facility by 5 basis points. expenses.
The Term A Loan and Revolving Credit Facility bearFacilities bear interest at rates based upon, at the option of BKIS, either (i) the base rate plus a margin of between 25 and 10050 basis points depending on the total net leverage ratio of BKFSBlack Knight Financial Services, LLC (“BKFS”), a Delaware limited liability company and the direct parent company of BKIS, and its restricted subsidiaries on a consolidated basis (the “Consolidated Leverage Ratio”) and (ii) the Eurodollar rate plus a margin of between 125 and 200150 basis points depending on the Consolidated Leverage Ratio, subject to a Eurodollar rate floor of zero basis points.Ratio. In addition, BKIS will pay an unused commitment fee of between 15 and 3020 basis points on the undrawn commitments under the Revolving Credit Facility, also depending on the Consolidated Leverage Ratio. PursuantThe above unused commitment fee and margins are consistent with the 2018 Credit Agreement. The 2021 Credit Agreement also provides us with an option to choose an alternative rate of interest on or before the cessation of the London Interbank Offered Rate (“LIBOR”) at our election.
As of June 30, 2021, the interest rate for the Facilities was based on the Eurodollar rate plus a margin of 150 basis points and was approximately 1.6%. As of June 30, 2021, we had $902.0 million capacity on the Revolving Credit Facility and the unused commitment fee was 20 basis points.
The Facilities are guaranteed by all of BKIS’s wholly-owned domestic restricted subsidiaries and BKFS, and are secured by associated collateral agreements that pledge a lien on the majority of BKIS’s assets and the assets of the guarantors, in each case, subject to customary exceptions.
The Term A Loan is subject to amortization of principal, payable in quarterly installments on the last day of each fiscal quarter equal to the termspercentage set forth below of the Credit Agreement Second Amendment,initial aggregate principal amount of the term loans for such fiscal quarter:
| | | |
Payment Dates | Percentage | ||
Commencing on March 31, 2022 through and including December 31, 2023 | 0.625 | % | |
Commencing on March 31, 2024 through and including December 31, 2025 | 1.250 | % |
The remaining principal balance of the Term A Loan and any outstanding loans under the Revolving Credit Facility matureare due upon maturity on February 25, 2022. The amount includedMarch 10, 2026.
As a result of the refinancing, we recognized $2.5 million of expense during the six months ended June 30, 2021 in Other expense, net on the Condensed Consolidated StatementsStatement of Earnings and Comprehensive Earnings (Unaudited) related to.
Senior Notes
On August 26, 2020, BKIS completed the Term A Loanissuance and Revolving Credit Facility refinancing was $3.3 million.
14
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Other Debt
On April 26, 2017,1, 2018, we redeemedentered into a financing agreement for $32.9 million, with a stated interest rate of 0% and an imputed interest rate of 3.4%, primarily related to certain data processing and maintenance services. On December 31, 2019, we entered into an amendment to the outstanding Senior Notes atfinancing agreement for an additional $16.3 million, with a pricestated interest rate of 104.825% (the "Redemption")0% and paid $0.7an imputed interest rate of 3.3%. Under the terms of the amendment, quarterly payments are due beginning January 2, 2020 through January 2, 2023. As of June 30, 2021 and December 31, 2020, $2.3 million in accrued interest. The amountand $9.5 million, respectively, are included in Other expense,Current portion of debt and $4.0 million and $6.4 million, respectively, are included in Long-term debt, net on theof current portion in our Condensed Consolidated StatementsBalance Sheets (Unaudited).
Finance Leases
On December 31, 2019, we entered into one-year finance lease agreements, with a stated interest rate of Earnings0%, an imputed interest rate of 3.3% and Comprehensive Earningsbargain purchase options for certain computer equipment. On March 31, 2021, we entered into one-year finance lease agreements, with a stated interest rate of 0%, an imputed interest rate of 1.6% and bargain purchase options for certain computer equipment. The leased equipment has a useful life of five years and is depreciated on a straight-line basis. The finance lease liabilities of $2.4 million and $1.2 million as of June 30, 2021 and December 31, 2020, respectively, are included in Current portion of debt on our Condensed Consolidated Balance Sheets (Unaudited). For the six months ended June 30, 2021 and 2020, non-cash investing and financing activity was $2.5 million and $8.4 million, respectively, related to the Senior Notes redemption was $8.2 million.
Fair Value of Long-Term Debt
The fair values of our Facilities and Senior Notes are based upon established market prices for the securities using Level 2 inputs. The fair value of our Facilities approximates their carrying value at SeptemberJune 30, 2017.2021. The fair value of our Facilities is based upon established market prices for the securities using level 2 inputs.
Interest Rate Swaps
We enter into an interest rate swap agreement to hedge forecasted monthly interest rate payments on $200.0 million of our floating rate debt (the "September 2017 Swap Agreement"). Under the terms of the September 2017 Swap Agreement, we receive payments based on the 1-month LIBOR rate (equal to 1.25% as of September 30, 2017) and pay a fixed rate of 1.69%. The effective term for the September 2017 Swap Agreement is September 29, 2017 through September 30, 2021.
| | | | | | |
Effective dates |
| Notional amount |
| Fixed rates |
| |
March 31, 2017 through March 31, 2022 | | $ | 200.0 |
| 2.08 | % |
September 29, 2017 through September 30, 2021 | | $ | 200.0 |
| 1.69 | % |
April 30, 2018 through April 30, 2023 | | $ | 250.0 |
| 2.61 | % |
January 31, 2019 through January 31, 2023 | | $ | 300.0 |
| 2.65 | % |
Under the terms of the January 2016 Swap Agreements, we receive payments based on the 1-month LIBOR rate (equal to 1.25%(approximately 0.10% as of SeptemberJune 30, 2017) and pay a weighted average fixed rate of 1.01%2021). The effective term for the January 2016 Swap Agreements is February 1, 2016 through January 31, 2019.
We entered into the Swap Agreements to convert a portion of the interest rate exposure on our floating rate debt from variable to fixed. We designated these Swap Agreements as cash flow hedges. A portion of the amount included in Accumulated other comprehensive earnings (loss)loss is reclassified into Interest expense, net as a yield adjustment as interest payments are madeis either paid or received on the hedged debt. The fair value of our Swap Agreements is based upon levelLevel 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreements.
Balance Sheet Account | September 30, 2017 | December 31, 2016 | ||||||
Other non-current assets | $ | 3.7 | $ | — | ||||
Other non-current liabilities | $ | 1.8 | $ | 2.2 |
Three months ended September 30, 2017 | Three months ended September 30, 2016 | ||||||||||||||
Amount of Gain Recognized in OCE | Amount of Loss Reclassified from Accumulated OCE into Net earnings | Amount of Gain Recognized in OCE | Amount of Loss Reclassified from Accumulated OCE into Net earnings | ||||||||||||
Swap agreements | |||||||||||||||
Attributable to noncontrolling interests | $ | 0.5 | $ | 0.1 | $ | 0.7 | $ | 0.3 | |||||||
Attributable to Black Knight | 0.3 | — | 0.4 | 0.1 | |||||||||||
Total | $ | 0.8 | $ | 0.1 | $ | 1.1 | $ | 0.4 |
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||||||||||||
Amount of Gain Recognized in OCE | Amount of Loss Reclassified from Accumulated OCE into Net earnings | Amount of Loss Recognized in OCE | Amount of Loss Reclassified from Accumulated OCE into Net earnings | ||||||||||||
Swap agreements | |||||||||||||||
Attributable to noncontrolling interests | $ | 1.7 | $ | 0.5 | $ | (1.6 | ) | $ | 0.8 | ||||||
Attributable to Black Knight | 0.9 | 0.2 | (0.9 | ) | 0.4 | ||||||||||
Total | $ | 2.6 | $ | 0.7 | $ | (2.5 | ) | $ | 1.2 |
It is our policy to execute such instruments with credit-worthycreditworthy banks and not to enter into derivative financial instruments for speculative purposes. As of September 30, 2017, weWe believe our interest rate swap counterparties will be able to fulfill their obligations under our agreements, and we believe we will have debt outstanding through the various expiration dates of the swaps such that the occurrence of future cash flow hedges remains probable.
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
The estimated fair values of our Swap Agreements are as follows (in millions):
| | | | | | |
Balance sheet accounts |
| June 30, 2021 |
| December 31, 2020 | ||
Other current liabilities | | $ | 3.8 | | $ | 2.4 |
Other non-current liabilities | | $ | 22.9 | | $ | 35.2 |
A cumulative loss of $26.7 million ($19.9 million net of tax) and cumulative loss of $37.6 million ($28.1 million net of tax) is reflected in Accumulated other comprehensive loss as of June 30, 2021 and December 31, 2020, respectively. Below is a resultsummary of the Distribution and the THL Interest Exchange, there are no longer any noncontrolling interests. Black Knight has determined that the Distribution represents a significant, unusual transaction or infrequently occurring event, and therefore, it is appropriate to exclude the taxes for the period prior to the Distribution from the estimated annual effective tax rate. The taxes for such items are individually computed andeffect of derivative instruments on amounts recognized as they occur.
| | | | | | | | | | | | |
| | Three months ended June 30, | ||||||||||
| | 2021 | | 2020 | ||||||||
|
| | |
| Amount of loss |
| | |
| Amount of loss | ||
| | Amount of loss | | reclassified from | | Amount of loss | | reclassified from | ||||
| | recognized | | Accumulated OCE | | recognized | | Accumulated OCE | ||||
| | in OCE | | into Net earnings | | in OCE | | into Net earnings | ||||
Swap agreements | | $ | (0.2) | | $ | 4.0 | | $ | (2.6) | | $ | 3.2 |
| | | | | | | | | | | | |
|
| Six months ended June 30, | ||||||||||
| | 2021 | | 2020 | ||||||||
| | | |
| Amount of loss |
| | |
| Amount of loss | ||
| | Amount of gain | | reclassified from | | Amount of loss | | reclassified from | ||||
| | recognized | | Accumulated OCE | | recognized | | Accumulated OCE | ||||
| | in OCE | | into Net earnings | | in OCE | | into Net earnings | ||||
Swap agreements | | $ | 0.3 | | $ | 7.9 | | $ | (24.2) | | $ | 4.4 |
Approximately $17.7 million ($13.2 million net of tax) of the balance in Accumulated other comprehensive loss as of June 30, 2021 is expected to be reclassified into Interest expense, net over the next 12 months.
(9)Fair Value Measurements
Fair Value of Financial Assets and Liabilities
Fair value represents the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of financial assets and liabilities are determined using the following fair value hierarchy:
● | Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. |
● | Level 2 inputs to the valuation methodology include: |
o | quoted prices for similar assets or liabilities in active markets; |
o | quoted prices for identical or similar assets or liabilities in inactive markets; |
o | inputs other than quoted prices that are observable for the asset or liability; and |
o | inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
16
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Assets are classified in their entirety based on the lowest level of input that is significant to the Distribution,fair value measurement. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the taxable incomefair value of BKFS LLCcertain financial instruments could result in a different fair value measurement at the reporting date.
The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||||||||||||||||||||
|
| Carrying |
| Fair value |
| Carrying |
| Fair value | ||||||||||||||||
| | amount | | Level 1 | | Level 2 | | Level 3 | | amount | | Level 1 | | Level 2 | | Level 3 | ||||||||
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents (Note 2) | | $ | 88.7 | | $ | 88.7 | | $ | 0 | | $ | 0 | | $ | 34.7 | | $ | 34.7 | | $ | 0 | | $ | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest rate swaps (Note 8) | |
| 26.7 | |
| 0 | |
| 26.7 | |
| 0 | |
| 37.6 | |
| 0 | |
| 37.6 | |
| 0 |
Contingent consideration (Note 3) | |
| 7.7 | |
| 0 | |
| 0 | |
| 7.7 | |
| 3.1 | |
| 0 | |
| 0 | |
| 3.1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interests | |
| 578.0 | |
| 0 | |
| 0 | |
| 578.0 | |
| 578.0 | |
| 0 | |
| 0 | |
| 578.0 |
The fair value of contingent consideration was allocatedprimarily determined based on significant estimates and assumptions, including Level 3 inputs. The estimates and assumptions include the projected timing and amount of future cash flows and discount rates reflecting the rate inherent in the future cash flows.
The following table presents a summary of the change in fair value of our Level 3 fair value measurements (in millions):
| | | |
Beginning balance, December 31, 2020 |
| $ | 581.1 |
Contingent consideration adjustments related to prior year acquisition | | | 0.1 |
Contingent consideration increase related to current year acquisition | |
| 4.5 |
Ending balance, June 30, 2021 | | $ | 585.7 |
As of June 30, 2021, the fair value of redeemable noncontrolling interests approximates its carrying amount due to its members, including BKFS,the close proximity to the reporting date of the contributions received from Cannae and the members were required to reflect on their own income tax returns the items of income, gain, deduction and loss and other tax items of BKFS LLC that were allocated to them. BKFS LLC made tax distributions to its membersTHL for their allocable share of BKFS LLC's taxable income. Tax distributions are calculated based on allocationsequity interests in Optimal Blue Holdco. Refer to Note 1 — Basis of income to a member Presentation and Overview and Note 3 — Business Acquisitions for a particular taxable year without taking into account any losses allocatedadditional information.
(10)Income Taxes
Our effective tax rate for the three months ended June 30, 2021 and 2020 was 22.0% and 20.9%, respectively, and 17.1% and 18.8% for the six months ended June 30, 2021 and 2020, respectively. Our effective tax rate for the three and six months ended June 30, 2021 and 2020 differs from our statutory rate primarily due to the member in a prior taxable year. This practice is consistent with IRS regulations. Subject to certain reductions,effect of excess tax distributions are generally made based on an assumed tax rate equalbenefits related to the highest combined marginal federal, statevesting of restricted shares of our common stock and local incomeresearch and experimentation tax rate applicable to a U.S. corporation. BKFS LLC made tax distributions of $75.3 million and $48.5 million during the nine months ended September 30, 2017 and 2016, respectively. The 2017 tax distributions were for the 2016 tax year and 2017 tax year relating to the period before the Distribution.
(11)Commitments and Contingencies
Legal and Regulatory Matters
In the ordinary course of business, we are involved in various pending and threatened litigation and regulatory matters related to our operations, some of which include claims for punitive or exemplary damages. Our ordinary course litigation includes purportedmay include class action lawsuits, which make allegations related to various aspects of our business. From time to time, we also receive requests for information from various state and federal regulatory authorities, some of which take the form of civil investigative demands or subpoenas. Some of these regulatory inquiries may result in the assessment of fines for violations of regulations or settlements with such authorities requiring a variety of remedies. We believe that none of these actions depart from customary litigation or regulatory inquiries incidental to our business.
17
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”"legal proceedings") on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings where it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending cases is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.
PennyMac Litigation
On November 5, 2019, Black Knight Servicing Technologies, LLC (“BKST”), an indirect, wholly-owned subsidiary of Black Knight, filed a Complaint and Demand for Jury Trial (the “Black Knight Complaint”) against PennyMac Loan Services, LLC (“PennyMac”) in the Circuit Court for the Fourth Judicial Circuit in and for Duval County, Florida. The Black Knight Complaint includes causes of action for breach of contract and misappropriation of MSP® System trade secrets in order to develop an imitation mortgage processing system intended to replace the MSP® System. The Black Knight Complaint seeks damages for breach of contract and misappropriation of trade secrets, injunctive relief under the Florida Uniform Trade Secrets Act and declaratory judgment that BKST owns all intellectual property and software developed by or on behalf of PennyMac as a result of its wrongful use of and access to the MSP® System and related trade secret and confidential information. PennyMac filed a motion to compel arbitration of the action, and the court granted the motion on April 6, 2020. After the court denied BKST's motion for reconsideration of the court’s order compelling arbitration, BKST filed a notice of appeal with the Florida First District Court of Appeal on May 6, 2020. On January 6, 2021, the appellate court affirmed the trial court's ruling.
On October 21, 2020, PennyMac submitted a dispute regarding a Black Knight Origination Technologies, LLC LendingSpace® software audit request to the American Arbitration Association ("AAA") for arbitration. Black Knight moved to consolidate the LendingSpace® arbitration with the existing trade secret/antitrust arbitrations and, on December 21, 2020, the arbitrator granted Black Knight’s motion to consolidate the arbitrations. On December 8, 2020, Black Knight and PennyMac filed motions for summary judgment concerning the LendingSpace® audit, and responses to the competing motions for summary judgment were filed by both parties on January 7, 2021. On February 16, 2021, the arbitrator granted Black Knight’s motion for summary judgment and ordered that Black Knight may conduct an audit of PennyMac’s use of Black Knight’s LendingSpace® software.
Shortly after the filing of the Black Knight Complaint, on November 6, 2019, PennyMac filed an Antitrust Complaint (the “PennyMac Complaint”) against Black Knight in the United States District Court for the Central District of California. The PennyMac Complaint included causes of action for alleged monopolization and attempted monopolization under Section 2 of the Sherman Antitrust Act, violation of California’s Cartwright Act, violation of California’s Unfair Competition Law and common law unfair competition under California law. The PennyMac Complaint sought equitable remedies, damages and other monetary relief, including treble and punitive damages. Generally, PennyMac alleged that Black Knight relies on various anticompetitive, unfair, and discriminatory practices to maintain and to enhance its dominance in the mortgage servicing platform market and in an attempt to monopolize the platform software applications market. Black Knight moved to dismiss the PennyMac Complaint or have the action transferred to Florida based upon a forum selection clause in the agreement with BKST. On February 13, 2020, the judge granted Black Knight's motion to transfer the case to Florida and denied as moot the motion to dismiss. On April 17, 2020, PennyMac filed a notice of dismissal of this action without prejudice and indicated that they intended to bring the claims raised in the dismissed PennyMac Complaint as defenses, third party claims and/or counterclaims in arbitration. On April 23, 2020, the court entered an order dismissing the action without prejudice and directing that the clerk close the case. On April 28, 2020, PennyMac submitted this matter to the AAA for arbitration. On May 27, 2020, Black Knight filed its answering statement with the AAA. The arbitrator was confirmed by the AAA on July 21, 2020.
The arbitrator set Black Knight's trade secret case for a 10-day final hearing beginning on October 24, 2022, and set PennyMac's antitrust case for a 5-day final hearing beginning on November 14, 2022.
On June 26, 2020, Black Knight filed a complaint against PennyMac in the United States District Court for the Middle District of Florida seeking a declaratory judgment that PennyMac waived its right to arbitrate federal antitrust and related state law claims against Black Knight because PennyMac previously filed and litigated those claims in a court of law (the “BKI Declaratory Action”). The parties filed cross-
18
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
motions for summary judgment and on March 22, 2021, the Court denied BKI’s motion for summary judgment and granted PennyMac’s motion as to the waiver issue, finding that PennyMac has not waived its right to arbitrate the claims raised in the Black Knight Complaint.
As these cases continue to evolve, it is not possible to reasonably estimate the probability that we will ultimately prevail on our lawsuit or be held liable for the violations alleged in the PennyMac Complaint, nor is it possible to reasonably estimate the ultimate gain or loss, if any, or range of gain or loss that could result from these cases.
Indemnifications and Warranties
We often agree to indemnify our clients against damages and costs resulting from claims of patent, copyright, trademark infringement or breaches of confidentiality associated with use of our software through software licensing agreements. Historically, we have not made any payments under such indemnifications, but continue to monitor the conditions that are subject to the indemnifications to identify whether a loss has occurred that is both probable and estimable that would require recognition. In addition, we warrant to clients that our software operates substantially in accordance with the software specifications. Historically, no costs have been incurred related to software warranties and none are expected in the future, and as such, no accruals for warranty costs have been made.
Indemnification Agreement
We are party to a cross-indemnity agreement dated December 22, 2014 with ServiceLink Holdings, LLC ("ServiceLink"). Pursuant to this agreement, ServiceLink indemnifies us from liabilities relating to, arising out of or resulting from the conduct of ServiceLink'sServiceLink’s business or any action, suit or proceeding in which we or any of our subsidiaries are named by reason of being a successor to the business of Lender Processing Services, Inc. and the cause of such action, suit or proceeding relates to the business of ServiceLink. In return, we indemnify ServiceLink for liabilities relating to, arising out of, or resulting from the conduct of our business.
(12)Revenues
Disaggregation of Revenues
The following tables summarize revenues from contracts with clients (in millions):
| | | | | | | | | | | | | | | | | | |
|
| Three months ended June 30, 2021 | ||||||||||||||||
|
| Servicing |
| Origination |
| Software |
| Data and |
| Corporate |
| | | |||||
| | Software | | Software | | Solutions | | Analytics | | and Other | | Total | ||||||
Software and hosting solutions | | $ | 187.4 | | $ | 82.6 | | $ | 270.0 | | $ | 9.3 | | $ | 0 | | $ | 279.3 |
Professional services | |
| 20.4 | | | 12.4 | |
| 32.8 | |
| 0.1 | |
| 0 | |
| 32.9 |
Data solutions | |
| 0 | | | 0.5 | |
| 0.5 | |
| 45.9 | |
| 0 | |
| 46.4 |
Other | |
| 0 | | | 2.1 | |
| 2.1 | |
| 0.6 | |
| 0 | |
| 2.7 |
Revenues | | $ | 207.8 | | $ | 97.6 | | $ | 305.4 | | $ | 55.9 | | $ | 0 | | $ | 361.3 |
| | | | | | | | | | | | | | | | | | |
|
| Three months ended June 30, 2020 | ||||||||||||||||
|
| Servicing |
| Origination |
| Software |
| Data and |
| Corporate |
| | | |||||
| | Software | | Software | | Solutions | | Analytics | | and Other | | Total | ||||||
Software and hosting solutions | | $ | 166.5 | | $ | 44.6 | | $ | 211.1 | | $ | 8.5 | | $ | 0 | | $ | 219.6 |
Professional services | |
| 17.8 | |
| 13.0 | |
| 30.8 | |
| 0.2 | |
| (0.2) | (1) |
| 30.8 |
Data solutions | |
| 0 | |
| 0 | |
| 0 | |
| 38.9 | |
| 0 | |
| 38.9 |
Other | |
| 0 | |
| 3.2 | |
| 3.2 | |
| 0.6 | |
| 0 | |
| 3.8 |
Revenues | | $ | 184.3 | | $ | 60.8 | | $ | 245.1 | | $ | 48.2 | | $ | (0.2) | | $ | 293.1 |
19
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
| | | | | | | | | | | | | | | | | | |
|
| Six months ended June 30, 2021 | ||||||||||||||||
| | Servicing |
| Origination |
| Software |
| Data and |
| Corporate |
| | | |||||
| | Software | | Software | | Solutions | | Analytics | | and Other | | Total | ||||||
Software and hosting solutions | | $ | 371.5 | | $ | 160.4 | | $ | 531.9 | | $ | 18.0 | | $ | 0 | | $ | 549.9 |
Professional services | |
| 39.0 | |
| 24.2 | |
| 63.2 | |
| 0.3 | |
| 0 | |
| 63.5 |
Data solutions | |
| 0 | |
| 1.7 | |
| 1.7 | |
| 90.3 | |
| 0 | |
| 92.0 |
Other | |
| 0 | |
| 4.4 | |
| 4.4 | |
| 1.2 | |
| 0 | |
| 5.6 |
Revenues | | $ | 410.5 | | $ | 190.7 | | $ | 601.2 | | $ | 109.8 | | $ | 0 | | $ | 711.0 |
| | | | | | | | | | | | | | | | | | |
|
| Six months ended June 30, 2020 | ||||||||||||||||
| | Servicing |
| Origination |
| Software |
| Data and |
| Corporate |
| | | |||||
| | Software | | Software | | Solutions | | Analytics | | and Other | | Total | ||||||
Software and hosting solutions | | $ | 343.5 | | $ | 80.9 | | $ | 424.4 | | $ | 16.9 | | $ | 0 | | $ | 441.3 |
Professional services | |
| 36.5 | |
| 22.5 | |
| 59.0 | |
| 0.5 | |
| (0.3) | (1) |
| 59.2 |
Data solutions | |
| 0 | |
| 0 | |
| 0 | |
| 75.7 | |
| 0 | |
| 75.7 |
Other | |
| 0 | |
| 6.4 | |
| 6.4 | |
| 1.2 | |
| 0 | |
| 7.6 |
Revenues | | $ | 380.0 | | $ | 109.8 | | $ | 489.8 | | $ | 94.3 | | $ | (0.3) | | $ | 583.8 |
(1) | Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP. |
Our Software Solutions segment offers leading software and hosting solutions that facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. These solutions primarily consist of processing and workflow management software applications. Our servicing software solutions primarily include our core servicing software solution that automates loan servicing, including loan setup and ongoing processing, customer service, accounting, reporting to the secondary mortgage market and investors and web-based workflow information systems. Our origination software solutions primarily include our solutions that automate and facilitate the origination of mortgage loans, offer product, pricing and eligibility capabilities, and provide an interconnected network allowing the various parties and systems associated with lending transactions to exchange data quickly and efficiently. Professional services consists of pre-implementation and post-implementation support and services and are primarily billed on a time and materials basis. Professional services may also include dedicated teams provided as part of agreements with software and hosting solutions clients.
Our Data and Analytics segment offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, behavioral models, a multiple listing service software solution and other data solutions.
Transaction Price Allocated to Future Performance Obligation
Our disclosure of transaction price allocated to future performance obligations excludes the following:
● | Volume-based fees in excess of contractual minimums and other usage-based fees to the extent they are part of a single performance obligation and meet certain variable allocation criteria; |
● | Performance obligations that are part of a contract with an original expected duration of one year or less; and |
● | Transactional fees based on a fixed fee per transaction when we have the right to invoice once we have completed the performance obligation. |
As of June 30, 2021, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $2.4 billion and is expected to be recognized as follows: 13% by December 31, 2021, 37% by December 31, 2022, 74% by December 31, 2024 and the rest thereafter.
20
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
(13)Equity
Share Repurchase Program
On February 3, 2017, we granted 884,570 restricted12, 2020, our Board of Directors approved a three-year share repurchase program authorizing us to repurchase up to 10.0 million shares of our Class Aoutstanding common stock through February 12, 2023, through open market purchases, negotiated transactions or other means, in accordance with a grant date fair valueapplicable securities laws and other restrictions.
There were 0 share repurchases during the three months ended June 30, 2021. A summary of $37.90share repurchases under our share repurchase program during the six months ended June 30, 2021 is as follows (in millions, except per share which was based on the closing priceamounts):
| | | | | | |
| | | | | | Shares remaining under repurchase |
Total number of shares repurchased | | Aggregate purchase price | | Average price paid per share | | authorization as of June 30, 2021 |
0.6 | | $46.7 | | $ 75.19 | | 9.4 |
Omnibus Incentive Plan
A summary of our common stock on the date of grant. Of the 884,570 restricted shares and RSUs granted 203,160 restricted shares vest over a three-year period and 681,410 restricted shares vest over a four-year period. The vesting of all the restricted shares granted on February 3, 2017in 2021 is also based on certain operating performance criteria.
| | | | | | | | | |
| | Number of shares | | Grant date fair | | Vesting period | | | |
Date |
| granted |
| value per share |
| (in years) |
| Vesting criteria | |
March 10, 2021(1) | | 518,219 | | $ | 76.00 | | 3.0 | | Service and Performance |
June 2021 | | 34,447 | | | 74.56 - 76.51 | | 1 - 2.7 | | Service |
Shares | Weighted Average Grant Date Fair Value | |||||
Balance, December 31, 2016 | 2,908,374 | * | ||||
Granted | 982,764 | $ | 38.31 | |||
Forfeited | (123,824 | ) | $ | 34.42 | ||
Vested | (1,840,719 | ) | * | |||
Balance, September 30, 2017 | 1,926,595 | * |
(1) | |
Activity related to restricted stock and RSUs in 2021 is as follows:
| | | | | |
| | | | Weighted average | |
| | | | grant date | |
|
| Shares |
| fair value | |
Balance, December 31, 2020 | | 1,549,098 |
| $ | 57.86 |
Granted |
| 552,666 | | $ | 75.94 |
Forfeited |
| (10,560) | | $ | 68.67 |
Vested |
| (872,411) | | $ | 52.42 |
Balance, June 30, 2021 |
| 1,218,793 | | $ | 69.86 |
Equity-based compensation expense related to our restricted shares and RSUs was $4.1$10.9 million and $3.4$9.5 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $14.2$18.1 million and $9.5$20.2 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Equity-based compensation includes accelerated recognition of $2.9 million for the three and six months ended June 30, 2021 and $0.2 million for the six months ended June 30, 2020. These expenses are included in Operating expenses in the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).
As of June 30, 2021, total unrecognized compensation cost was $44.3$59.7 million as of September 30, 2017 and is expected to be recognized over a weighted average period of approximately 2.62.2 years.
Profits Interests Units
The OB PIUs vest over three years, with cliff vesting after the third year. Holders of the OB PIUs have an option to put their profit interests to us if no public offering has been consummated as of the date that is 60 days prior to the fourth and each subsequent anniversary of the acquisition date of Optimal Blue. The units may be settled in cash or Black Knight Financial Services, Inc. 2015 Omnibus Incentive Plan (the "BKFS Omnibus Plan") was establishedcommon stock or a combination of both at our election and will be settled at the current fair value at the time we receive notice of the put election. As the OB PIUs provide for redemption features not solely within our control, we classify the redemption value outside of permanent equity in 2015 and is now titled the “Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan” (the "Black Knight Omnibus Plan"). The Black Knight Financial Services, Inc. boardredeemable noncontrolling interests.
21
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
The redemption value is equal to the difference in the per unit fair value of the underlying member units and the hurdle amount, based upon the proportionate required service period rendered to date.
Equity-based compensation expense related to the OB PIUs was $2.2 million and $4.4 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2021, the total unrecognized compensation cost related to non-vested OB PIUs is $21.6 million, which is expected to be recognized over a weighted average period of approximately 2.4 years.
22
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Accounting Standards Codification (“ASC”) Topic 280,
Segment Reporting ("ASC 280")establishes standards for reporting information about segments and requires that a public business enterprise reports financial and descriptive information about its segments. Segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.Separate discrete financial information is available for these two2 segments, and the operating results of each segment are regularly evaluated by the CODM in order to assess performance and allocate resources. We use EBITDA as the primary profitability measure for making decisions regarding ongoing operations. EBITDA is earnings before Interest expense, net, Income tax expense and Depreciation and amortization. It also excludes Equity in earnings (losses) of unconsolidated affiliates. We do not allocate Interest expense, net, Other expense, net, Income tax expense, equity-based compensation and certain other items, such as purchase accounting adjustments and acquisition-related costs to the segments, since these items are not considered in evaluating the segments'segments’ overall operating performance.
Segment asset information is not included below because we do not use it to evaluate performance or allocate resources. Summarized financial information concerning our segments is shown in the tables below (in millions):
| | | | | | | | | | | | |
| | Three months ended June 30, 2021 | ||||||||||
| | Software | | Data and | | Corporate and | | | | |||
|
| Solutions |
| Analytics |
| Other |
| Total | ||||
Revenues | | $ | 305.4 |
| $ | 55.9 | | $ | 0 | (1) | $ | 361.3 |
Expenses: | |
|
| |
|
| |
|
|
|
|
|
Operating expenses | |
| 130.6 | |
| 35.1 | |
| 31.3 | (2) |
| 197.0 |
Transition and integration costs | |
| 0 | |
| 0 | |
| 4.3 | (3) |
| 4.3 |
EBITDA | |
| 174.8 | |
| 20.8 | |
| (35.6) |
|
| 160.0 |
Depreciation and amortization | |
| 33.2 | |
| 3.7 | |
| 53.5 | (4) |
| 90.4 |
Operating income (loss) | |
| 141.6 | |
| 17.1 | |
| (89.1) |
|
| 69.6 |
Interest expense, net | |
|
| |
|
| |
|
|
|
| (20.9) |
Other expense, net | |
|
| |
|
| |
|
|
|
| (1.0) |
Earnings before income taxes and equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 47.7 |
Income tax expense | |
|
| |
|
| |
|
|
|
| 10.5 |
Earnings before equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 37.2 |
Equity in losses of unconsolidated affiliates, net of tax | |
|
| |
|
| |
|
|
|
| (5.0) |
Net earnings | |
|
| |
|
| |
|
|
|
| 32.2 |
Net losses attributable to redeemable noncontrolling interests | |
|
| |
|
| |
|
|
|
| 7.5 |
Net earnings attributable to Black Knight | |
|
| |
|
| |
|
|
| $ | 39.7 |
23
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
| | | | | | | | | | | | |
| | Three months ended June 30, 2020 | ||||||||||
| | Software |
| Data and | | Corporate and | | | | |||
|
| Solutions | | Analytics | | Other | | Total | ||||
Revenues | | $ | 245.1 | | $ | 48.2 | | $ | (0.2) | (1) | $ | 293.1 |
Expenses: | |
|
| |
|
| |
|
|
|
|
|
Operating expenses | |
| 98.9 | |
| 32.1 | |
| 24.5 | (2) |
| 155.5 |
Transition and integration costs | |
| 0 | |
| 0 | |
| 2.5 | (3) |
| 2.5 |
EBITDA | |
| 146.2 | |
| 16.1 | |
| (27.2) |
|
| 135.1 |
Depreciation and amortization | |
| 30.2 | |
| 3.8 | |
| 24.6 | (4) |
| 58.6 |
Operating income (loss) | |
| 116.0 | |
| 12.3 | |
| (51.8) |
|
| 76.5 |
Interest expense, net | |
|
| |
|
| |
|
|
|
| (13.0) |
Other income, net | |
|
| |
|
| |
|
|
|
| 18.8 |
Earnings before income taxes and equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 82.3 |
Income tax expense | |
|
| |
|
| |
|
|
|
| 17.2 |
Earnings before equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 65.1 |
Equity in losses of unconsolidated affiliates, net of tax | |
|
| |
|
| |
|
|
|
| (26.0) |
Net earnings | |
|
| |
|
| |
|
|
| $ | 39.1 |
| | | | | | | | | | | | |
| | Six months ended June 30, 2021 | ||||||||||
| | Software |
| Data and | | Corporate and | | | | |||
|
| Solutions | | Analytics |
| Other |
| Total | ||||
Revenues | | $ | 601.2 |
| $ | 109.8 | | $ | — | (1) | $ | 711.0 |
Expenses: | |
|
|
|
|
| |
|
|
|
|
|
Operating expenses | |
| 255.5 |
|
| 69.3 | |
| 58.4 | (2) |
| 383.2 |
Transition and integration costs | |
| — |
|
| — | |
| 12.2 | (3) |
| 12.2 |
EBITDA | |
| 345.7 | |
| 40.5 | |
| (70.6) |
|
| 315.6 |
Depreciation and amortization | |
| 64.4 |
|
| 7.5 | |
| 106.3 | (4) |
| 178.2 |
Operating income (loss) | |
| 281.3 | |
| 33.0 | |
| (176.9) |
|
| 137.4 |
Interest expense, net | |
|
|
|
|
| |
|
|
|
| (41.2) |
Other expense, net | |
|
|
|
|
| |
|
|
|
| (4.2) |
Earnings before income taxes and equity in earnings of unconsolidated affiliates | |
|
|
|
|
| |
|
|
|
| 92.0 |
Income tax expense | |
|
|
|
|
| |
|
|
|
| 15.7 |
Earnings before equity in earnings of unconsolidated affiliates | |
|
|
|
|
| |
|
|
|
| 76.3 |
Equity in earnings of unconsolidated affiliates, net of tax | |
|
|
|
|
| |
|
|
|
| 1.4 |
Net earnings | |
|
|
|
|
| |
|
|
|
| 77.7 |
Net losses attributable to redeemable noncontrolling interests | |
|
|
|
|
| |
|
|
|
| 16.1 |
Net earnings attributable to Black Knight | |
|
|
|
|
| |
|
|
| $ | 93.8 |
24
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
| | | | | | | | | | | | |
| | Six months ended June 30, 2020 | ||||||||||
| | Software | | Data and | | Corporate and |
| | | |||
|
| Solutions |
| Analytics |
| Other |
| Total | ||||
Revenues | | $ | 489.8 | | $ | 94.3 | | $ | (0.3) | (1) | $ | 583.8 |
Expenses: | |
|
| |
|
| |
|
|
|
|
|
Operating expenses | |
| 204.2 | |
| 63.6 | |
| 50.1 | (2) |
| 317.9 |
Transition and integration costs | |
| — | |
| — | |
| 4.9 | (3) |
| 4.9 |
EBITDA | |
| 285.6 | |
| 30.7 | |
| (55.3) |
|
| 261.0 |
Depreciation and amortization | |
| 60.5 | |
| 7.8 | |
| 48.0 | (4) |
| 116.3 |
Operating income (loss) | |
| 225.1 | |
| 22.9 | |
| (103.3) |
|
| 144.7 |
Interest expense, net | |
|
| |
|
| |
|
|
|
| (27.7) |
Other income, net | |
|
| |
|
| |
|
|
|
| 18.0 |
Earnings before income taxes and equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 135.0 |
Income tax expense | |
|
| |
|
| |
|
|
|
| 25.4 |
Earnings before equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 109.6 |
Equity in losses of unconsolidated affiliates, net of tax | |
|
| |
|
| |
|
|
|
| (20.4) |
Net earnings | |
|
| |
|
| |
|
|
| $ | 89.2 |
Three months ended September 30, 2017 | |||||||||||||||
Software Solutions | Data and Analytics | Corporate and Other | Total | ||||||||||||
Revenues | $ | 224.5 | $ | 40.3 | $ | (1.0 | ) | (1) | $ | 263.8 | |||||
Expenses: | |||||||||||||||
Operating expenses | 93.0 | 32.7 | 15.0 | 140.7 | |||||||||||
Transition and integration costs | — | — | 4.0 | 4.0 | |||||||||||
EBITDA | 131.5 | 7.6 | (20.0 | ) | 119.1 | ||||||||||
Depreciation and amortization | 24.3 | 3.7 | 23.3 | (2) | 51.3 | ||||||||||
Operating income (loss) | 107.2 | 3.9 | (43.3 | ) | 67.8 | ||||||||||
Interest expense | (14.1 | ) | |||||||||||||
Other expense, net | (0.6 | ) | |||||||||||||
Earnings before income taxes | 53.1 | ||||||||||||||
Income tax expense | 9.2 | ||||||||||||||
Net earnings | $ | 43.9 |
(1) | Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP. |
(2) | Operating expenses for Corporate and Other includes equity-based compensation, including certain related payroll taxes, of $13.2 million and $9.5 million for the three months ended June 30, 2021 and 2020, respectively, and $23.7 million and $21.2 million for the six months ended June 30, 2021 and 2020, respectively. |
(3) | Transition and integration costs primarily consists of costs associated with acquisitions. |
(4) | Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP. |
25
Three months ended September 30, 2016 | |||||||||||||||
Software Solutions | Data and Analytics | Corporate and Other | Total | ||||||||||||
Revenues | $ | 221.0 | $ | 47.6 | $ | (1.5 | ) | (1) | $ | 267.1 | |||||
Expenses: | |||||||||||||||
Operating expenses | 95.9 | 39.2 | 17.1 | 152.2 | |||||||||||
Transition and integration costs | — | — | 1.1 | 1.1 | |||||||||||
EBITDA | 125.1 | 8.4 | (19.7 | ) | 113.8 | ||||||||||
Depreciation and amortization | 29.0 | 2.1 | 25.7 | (2) | 56.8 | ||||||||||
Operating income (loss) | 96.1 | 6.3 | (45.4 | ) | 57.0 | ||||||||||
Interest expense | (16.9 | ) | |||||||||||||
Other expense, net | (1.4 | ) | |||||||||||||
Earnings before income taxes | 38.7 | ||||||||||||||
Income tax expense | 6.3 | ||||||||||||||
Net earnings | $ | 32.4 |
Nine months ended September 30, 2017 | |||||||||||||||
Software Solutions | Data and Analytics | Corporate and Other | Total | ||||||||||||
Revenues | $ | 665.6 | $ | 122.1 | $ | (3.6 | ) | (1) | $ | 784.1 | |||||
Expenses: | |||||||||||||||
Operating expenses | 277.7 | 99.2 | 51.3 | 428.2 | |||||||||||
Transition and integration costs | — | — | 8.5 | 8.5 | |||||||||||
EBITDA | 387.9 | 22.9 | (63.4 | ) | 347.4 | ||||||||||
Depreciation and amortization | 74.9 | 11.0 | 68.3 | (2) | 154.2 | ||||||||||
Operating income (loss) | 313.0 | 11.9 | (131.7 | ) | 193.2 | ||||||||||
Interest expense | (44.8 | ) | |||||||||||||
Other expense, net | (17.1 | ) | |||||||||||||
Earnings before income taxes | 131.3 | ||||||||||||||
Income tax expense | 24.3 | ||||||||||||||
Net earnings | $ | 107.0 | |||||||||||||
Balance sheet data: | |||||||||||||||
Total assets | $ | 3,153.4 | $ | 352.0 | $ | 244.6 | $ | 3,750.0 | |||||||
Goodwill | $ | 2,115.0 | $ | 191.8 | $ | — | $ | 2,306.8 |
Nine months ended September 30, 2016 | |||||||||||||||
Software Solutions | Data and Analytics | Corporate and Other | Total | ||||||||||||
Revenues | $ | 636.6 | $ | 133.7 | $ | (5.8 | ) | (1) | $ | 764.5 | |||||
Expenses: | |||||||||||||||
Operating expenses | 273.2 | 111.7 | 48.5 | 433.4 | |||||||||||
Transition and integration costs | — | — | 2.2 | 2.2 | |||||||||||
EBITDA | 363.4 | 22.0 | (56.5 | ) | 328.9 | ||||||||||
Depreciation and amortization | 80.2 | 6.5 | 67.5 | (2) | 154.2 | ||||||||||
Operating income (loss) | 283.2 | 15.5 | (124.0 | ) | 174.7 | ||||||||||
Interest expense | (50.6 | ) | |||||||||||||
Other expense, net | (6.2 | ) | |||||||||||||
Earnings before income taxes | 117.9 | ||||||||||||||
Income tax expense | 19.2 | ||||||||||||||
Net earnings | $ | 98.7 | |||||||||||||
Balance sheet data: | |||||||||||||||
Total assets | $ | 3,225.6 | $ | 353.4 | $ | 134.5 | $ | 3,713.5 | |||||||
Goodwill | $ | 2,108.7 | $ | 191.8 | $ | — | $ | 2,300.5 |
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding expectations, hopes, intentions or strategies regarding the future. Forward-looking statements are based on Black Knight, management'sInc. and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our") management’s beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Black Knight, Inc. (
● | changes in general economic, business, regulatory and political conditions, including those resulting from pandemics such as COVID-19, particularly as they affect foreclosures and the mortgage industry; |
● | the outbreak of COVID-19 and measures to reduce its spread, including the effect of governmental or voluntary actions such as business shutdowns and stay-at-home orders; |
● | security breaches against our information systems or breaches involving our third-party vendors; |
● | our ability to maintain and grow our relationships with our clients; |
● | our ability to comply with or changes to the laws, rules and regulations that affect our and our clients’ businesses; |
● | our ability to adapt our solutions to technological changes or evolving industry standards or to achieve our growth strategies; |
● | our ability to protect our proprietary software and information rights; |
● | the effect of any potential defects, development delays, installation difficulties or system failures on our business and reputation; |
● | risks associated with the availability of data; |
● | the effects of our existing leverage on our ability to make acquisitions and invest in our business; |
● | our ability to successfully consummate, integrate and achieve the intended benefits of acquisitions; |
● | risks associated with our investment in Dun & Bradstreet Holdings, Inc. ("DNB") and integrating and achieving the intended benefits of the acquisition of Optimal Blue, LLC (“Optimal Blue”); and |
● | other risks and uncertainties detailed in the "Statement Regarding Forward-Looking Information," "Risk Factors" and other sections of our Annual Report on Form 10-K for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission ("SEC"). |
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the SEC on February 24, 2017.
Overview
We are an award-winning software, data and analytics solutions tocompany that drives innovation in the mortgage lending and consumer loan,servicing and real estate industries, as well as the capital and capital market verticals. Oursecondary markets. Businesses leverage our robust, integrated solutions facilitate and automate many of the mission-critical business processes across the entire homeownership lifecycle, from origination until asset disposition. We believe we differentiate ourselves by the breadthlife-cycle to help retain existing clients, gain new clients, mitigate risk and depth ofoperate more effectively. Our clients rely on our proven, comprehensive, integrated solutionsscalable products and the insight we provideour unwavering commitment to our clients. Black Knight was a majority-owned subsidiary of Fidelity National Financial, Inc. ("FNF") priordelivering superior client support to the Distribution as described in the "Distribution of FNF's Ownership Interestachieve their strategic goals and Related Transactions" section below.
We have market-leading positions in mortgage processing andvertical software solutions combined with comprehensive real estate data and extensive analytic capabilities. Our solutions are utilized by U.S. mortgage loan originators and mortgage servicers, as well as other financial institutions, investors and real estate professionals, to support mortgage lending and servicing operations, analyze portfolios and properties, operate more efficiently, meet regulatory compliance requirements and mitigate risk.
We believe the breadth and mortgage market participants have been subjected to more stringent oversight in recent years. Regulators have increasingly focused on better disclosure, improved risk mitigation and enhanced oversight. Mortgage lenders large and small have experienced higher costs in order to comply with this higher leveldepth of regulation. Despite these new regulatory requirements, the mortgage industry remains a competitive marketplace with numerous large lenders and smaller institutions competing for new loan originations. In order to comply with the increased regulatory requirements and compete more effectively, mortgage market participants have continued to outsource mission-critical functions to third party technology providers that can offer comprehensive and integrated solutions, which are also cost-effective, due to their deep domain expertise and economies of scale.
26
The table below summarizes active first and second lien mortgagesmortgage loans on our mortgage loan servicing software solution and the related market data, reflecting our leadership in the mortgage loan servicing software solutions market (in millions):
| | | | | | | | | | | | | | | | | |
| | First lien | | | Second lien | | | Total first and second lien |
| ||||||||
| | as of June 30, | | | as of June 30, | | | as of June 30, | | ||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
| 2020 | |
Active loans |
| 32.3 |
|
| 30.7 |
|
| 3.3 |
|
| 2.5 |
|
| 35.6 |
| 33.2 | |
Market size |
| 53.1 |
| (1) | 53.2 |
| (1) | 12.4 |
| (2) | 13.0 |
| (2) | 65.5 |
| 66.2 | |
Market share |
| 61 | % |
| 58 | % |
| 26 | % |
| 19 | % |
| 54 | % | 50 | % |
First lien mortgages | Second lien mortgages | ||||||||||||
as of September 30, | as of September 30, | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Active loans | 31.5 | 31.2 | 1.9 | 1.1 | |||||||||
Market size | 51.0 | (1) | 50.7 | (1) | 15.4 | (2) | 15.7 | (2) | |||||
Market share | 62 | % | 61 | % | 12 | % | 7 | % |
(1) | According to the |
(2) | According to the July |
We offer our solutions to a wide range of clients across the mortgage and consumer loan, real estate and capital marketmarkets verticals. The quality and breadth of our solutions contribute to the long-standing nature of our relationships with our clients, the majority of whom enter into long-term contracts across multiple products that are embedded in their mission criticalmission-critical workflow and decision processes.processes, particularly in the Software Solutions segment. Given the contractual nature of our revenues and stickiness of our client relationships, our revenues are highly visible and recurring in nature. Due to our integrated suite of solutions and our scale, in the mortgage market, we are able to drive significant operating leverage, which we believe enables our clients to operate more efficiently while allowing us to generate strong margins and cash flow.
Our Markets
The U.S. mortgage loan market is large, and the loan life cyclelifecycle is complex and consists of several stages. The mortgage loan life cyclelifecycle includes origination, servicing and default. MortgagesMortgage loans are originated to finance home purchases or refinance existing mortgages.mortgage loans. Once a mortgage loan is originated, it is serviced on a periodic basis by mortgage servicers, which may not be the lenders that originated the mortgage.mortgage loan. Furthermore, if a mortgage experiencesloan goes into default, it triggers a set of multifaceted processes with an assortment of potential outcomes depending on a mix of variables.
Underlying the three major componentsstages of the mortgage loan life cyclelifecycle are the software, and data and analytics support behind each process, which hashave become increasingly criticalintegral to industry participants due to the complexity of regulatory requirements.participants. As the industry has grown in complexity, participants have responded by outsourcing to large scalelarge-scale specialty providers, automating manual processes and seeking end-to-end solutions that support the processes required to manage the entire mortgage loan life cycle.
Business Trends and Conditions
COVID-19 Pandemic
COVID-19 and the U.S.’s response to the pandemic are significantly affecting the mortgage and real estate industries. The U.S. mortgage market has seen significant change overDepartment of Housing and Urban Development ("HUD"), the past few years and is expected to continue to evolve going forward. Key regulatory actions arising from the recent financial crisis, such as the Dodd-Frank Wall Street Reform and Consumer Protection ActFederal Housing Administration ("Dodd-Frank Act"FHA”) and the establishment ofFederal Housing Finance Agency ("FHFA") announced a moratorium on mortgage loan foreclosures and evictions. The FHFA also announced mortgage loan forbearance programs for certain borrowers that allow mortgage loan payments to be suspended for up to 12 months. The federal moratoriums expired on July 31, 2021. However, the Consumer Financial Protection Bureau ("CFPB")has amended the federal mortgage servicing regulations to support the housing market’s smooth and orderly transition as federal foreclosure protections expire. The amendments establish temporary safeguards to help prevent a surge of foreclosures and ensure that borrowers have time before foreclosure to explore their options. In addition, many states have implemented additional guidance that extends their moratorium on mortgage loan foreclosures and evictions, and additional extensions of these moratoriums may be implemented in the future.
There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business or our operations.
27
Black Knight Response and the Effect on Our Business
We continue to execute on our business continuity plans to address the challenges related to the ongoing COVID-19 pandemic. Since March 2020, substantially all of our employees have been working from home. We are following the requirements and protocols published by the U.S. Centers for Disease Control, the WHO and country, state and local governments. Our most important priorities are the health and safety of our employees and helping the communities where we work and live. A phased return to office plan has been created, which outlines when and how we will slowly begin to lift the actions put in place as part of our business continuity plans. The plan includes a phased return to office, social distancing , impose newtravel restrictions and evolving standardsadditional safety precautions and is being enacted at each location when the risk to re-open has been reduced to an acceptable level. We continue to monitor the effects of the pandemic on our global workforce and have contingency plans in place to mitigate business risks and are prepared to adjust our phased return to office plan as necessary. We believe working from home has been successful and has not significantly affected our results of operations, financial condition, cash flows or control environment.
The extraordinary effects of the broad-based response to the COVID-19 pandemic have delayed the timing of certain revenues. Specifically, the mortgage loan foreclosure moratorium and forbearance plans have reduced the number of foreclosures being processed on our BankruptcySM/ForeclosureSM and InvoicingSM software solutions for which revenue is recognized as transactions occur. Many of our clients continue to work from home while experiencing refinance origination volume increases as well as an elevated number of customer service calls. Our teams are focused on supporting our clients in this shifting landscape and stand ready to deliver our solutions.
Our clients have experienced the significant changes in how their customers want to, or are able to, interact with them throughout the pandemic and have realized these changes will likely persist beyond the pandemic. In reaction to these changes, our clients are prioritizing automated technology solutions that enable them to remotely engage with their customers and provide streamlined ways of performing the core functions of their businesses, all while maintaining regulatory compliance in an environment that is rapidly changing. We believe our solutions are well-positioned to help our clients address these needs.
We partner with many of the industry’s best lenders and servicers and believe it is our duty to serve in a leadership role as we manage through this crisis and beyond. From the start of the COVID-19 crisis, we have worked to provide leadership on behalf of our clients and to provide them with actionable intelligence, including our monthly Mortgage Monitor report and our McDash Flash Forbearance Tracker. We have also published in-depth white papers, held town hall meetings with our clients and have had frequent meetings with senior executives at our clients, government agencies and industry associations. We believe the in-depth data and insights we offer are essential for both mortgage market participants. These regulatory changesparticipants and government entities as we work together to address the economic ramifications of the crisis.
Our investment and innovation in digital mortgage loan solutions have made it possible for a majority of the mortgage application, underwriting and closing processes to happen online and remotely. Our industry-leading servicing system and a mortgage loan contributory data set represents a majority of the U.S. market and is modeled to represent the entire U.S. market. Our robust analytics and seamless integration ties them all together and allows for real-time visibility into the majority of active mortgage loans and a holistic view of the homeownership lifecycle. The depth of our integrated software, data and analytics enables clients to see what the effects of the pandemic mean for their business and industry. Our clients use these robust solutions for modeling, forecasting and reserve setting, which is critical, especially in this current environment.
Market Trends
Market trends that have spurred lenders and servicers to seek technologysoftware, data and analytics solutions that facilitate the meeting of compliance obligations in the face of a changing regulatory environment while remaining efficient and profitable.
Integral role of technology in the U.S. mortgage industry.
28
Heightened demand for enhanced transparency and analytic insight. As U.S. mortgage loan market participants work to minimize the risk in lending, servicing and capital markets, they rely on the integration of data and analytics with technologiessolutions that enhance the decision makingdecision-making process. These industry participants rely on large comprehensive third partythird-party databases coupled with enhanced analytics to achieve these goals.
Regulatory changes and oversight. Most U.S. mortgage loan market participants are subject to a high level of regulatory oversight and regulatory requirements as federal and state governments have enacted various new laws, rules and regulations. It is our experience that mortgage originations, including refinancing transactions. lenders and servicers have become more focused on minimizing the risk of non-compliance with regulatory requirements and are looking toward solutions that assist them in complying with their regulatory requirements. We expect this trend to continue as additional governmental programs and regulations have been recently enacted to address the economic concerns resulting from the pandemic, and our clients have had to adapt their systems and processes in record time to the shifting landscape. In addition, our clients and our clients’ regulators have elevated their focus on privacy and data security while many of our clients’ employees are working from home and in light of an increased level of cybersecurity incidents. We expect the industry focus on privacy and data security to continue to increase.
Our mortgageBusiness Segments
Our business is organized into two segments: Software Solutions and Data and Analytics.
Software Solutions
Our Software Solutions segment offers software and hosting solutions that primarily support loan servicing, loan origination, settlement services and secondary marketing activities. The following table summarizes our software solutions revenues (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | % of segment | | Six months ended | | % of segment | | ||||||||||||
| | June 30, | | revenues | | June 30, | | revenues | | ||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Servicing software solutions | | $ | 207.8 | | $ | 184.3 |
| 68 | % | 75 | % | $ | 410.5 | | $ | 380.0 |
| 68 | % | 78 | % |
Origination software solutions | |
| 97.6 | |
| 60.8 |
| 32 | % | 25 | % |
| 190.7 | |
| 109.8 |
| 32 | % | 22 | % |
Software Solutions | | $ | 305.4 | | $ | 245.1 |
| 100 | % | 100 | % | $ | 601.2 | | $ | 489.8 |
| 100 | % | 100 | % |
Our servicing software solutions primarily include our core servicing software solution is minimally affected by varying levels ofthat automates loan servicing, including loan setup and ongoing processing, customer service, accounting, reporting to the secondary mortgage originations because itmarket and investors and web-based workflow information systems. Our servicing software solutions primarily earnsgenerate revenues based on the total number of mortgage loans it processes, which tend to stay more constant than the market for originations. Our origination software and some of our data businesses may be affected by the volume of real estate transactions and mortgage originations, but many of our client contracts for origination software solutions contain minimum charges.
As a result of the realignment,effects of the broad-based response to the COVID-19 pandemic, we have seen lower foreclosure-related transactional revenues due to the mortgage loan foreclosure moratorium and expect this trend to continue due to the mortgage loan forbearance plans offered as part of the CARES Act. As of July 27, 2021, Black Knight no longer recognizesKnight’s McDash Flash Forbearance Tracker estimated 1.9 million homeowners, or 3.6% of all U.S. mortgage loans, were in COVID-19 mortgage loan forbearance plans.
Our origination software solutions primarily include our solutions that automate and facilitate the origination of mortgage loans and provide an interconnected network allowing the various parties and systems associated with lending transactions to exchange data quickly and efficiently. Our exposure to origination volumes is limited as our loan origination system revenues or expensesare based on closed loan volumes subject to minimum base software fees that are contractually obligated, and our secondary marketing technologies’ revenues are primarily subscription-based. Some of our origination software solutions are exposed to variances in origination volumes, primarily related to title plant posting and maintenance, but charges FNF a license fee for userefinance volumes due to the nature of the technologyservices provided. Given the continued low level of mortgage loan interest rates, we have seen elevated volumes related to accessrefinance originations. However, we expect to see lower volumes related to refinance originations during the remainder of 2021 due to the record volumes in the prior year periods. We have also seen improvement in purchase origination volumes primarily due to the current interest rate environment and maintainexpect this trend to continue. Our origination software solutions that are more sensitive to origination volumes were approximately 5% of our consolidated revenues for the title plant data. Hadthree months ended June 30, 2021.
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Data and Analytics
Our Data and Analytics segment offers data and analytics solutions to the realignment taken placemortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, behavioral models, a multiple listing service software solution and other data solutions. Our data and analytics business is predominantly based on January 1, 2016, Black Knightlonger-term strategic data licenses, other data licenses and subscription-based revenues. For the three and six months ended June 30, 2021, our data and analytics revenues were 15% of our consolidated revenues and expenses16% of our consolidated revenues for 2016 would have been lower bythe three and six months ended June 30, 2020. Our data and analytics solutions that are more sensitive to fluctuations in home buying activity and origination volumes were approximately $30 million with essentially no effect4% of our consolidated revenues for the three months ended June 30, 2021 and relate to operating income. This transaction did not result in any gain or loss.
Results of Operations
Key Performance Metrics
Revenues, Adjusted EBITDA and Adjusted EBITDA Margin for financial and operational decision making and as a means to evaluate period-to-period comparisons. Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performances. Black Knight believes these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making, including determining a portion of executive compensation.
Consolidated Results of Operations
The following table presents certain financial data for the periods presented due to the deferred revenue purchase accounting adjustment recorded in accordance with GAAP. These adjustments are reflected in Corporate and Other.
| | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Revenues | | $ | 361.3 | | $ | 293.1 | | $ | 711.0 | | $ | 583.8 | |
Expenses: | |
|
| |
|
| |
|
| |
|
| |
Operating expenses | |
| 197.0 | |
| 155.5 | |
| 383.2 | |
| 317.9 | |
Depreciation and amortization | |
| 90.4 | |
| 58.6 | |
| 178.2 | |
| 116.3 | |
Transition and integration costs | |
| 4.3 | |
| 2.5 | |
| 12.2 | |
| 4.9 | |
Total expenses | |
| 291.7 | |
| 216.6 | |
| 573.6 | |
| 439.1 | |
Operating income | |
| 69.6 | |
| 76.5 | |
| 137.4 | |
| 144.7 | |
Operating margin | |
| 19.3 | % |
| 26.1 | % |
| 19.3 | % |
| 24.8 | % |
Interest expense, net | |
| (20.9) | |
| (13.0) | |
| (41.2) | |
| (27.7) | |
Other (expense) income, net | |
| (1.0) | |
| 18.8 | |
| (4.2) | |
| 18.0 | |
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates | |
| 47.7 | |
| 82.3 | |
| 92.0 | |
| 135.0 | |
Income tax expense | |
| 10.5 | |
| 17.2 | |
| 15.7 | |
| 25.4 | |
Earnings before equity in (losses) earnings of unconsolidated affiliates | |
| 37.2 | |
| 65.1 | |
| 76.3 | |
| 109.6 | |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | |
| (5.0) | |
| (26.0) | |
| 1.4 | |
| (20.4) | |
Net earnings | |
| 32.2 | |
| 39.1 | |
| 77.7 | |
| 89.2 | |
Net losses attributable to redeemable noncontrolling interests | |
| 7.5 | |
| — | |
| 16.1 | |
| — | |
Net earnings attributable to Black Knight | | $ | 39.7 | | $ | 39.1 | | $ | 93.8 | | $ | 89.2 | |
| | | | | | | | | | | | | |
Net earnings per share attributable to Black Knight common shareholders: | |
|
| |
|
| |
|
| |
|
| |
Diluted | | $ | 0.25 | | $ | 0.26 | | $ | 0.60 | | $ | 0.60 | |
Weighted average shares of common stock outstanding: | |
|
| |
|
| |
| �� | |
|
| |
Diluted | |
| 155.7 | |
| 150.0 | |
| 155.8 | |
| 149.3 | |
30
Consolidated Results of Operations | |||||||||||||||
The following table presents certain financial data for the periods indicated (in millions): | |||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 263.8 | $ | 267.1 | $ | 784.1 | $ | 764.5 | |||||||
Expenses: | |||||||||||||||
Operating expenses | 140.7 | 152.2 | 428.2 | 433.4 | |||||||||||
Depreciation and amortization | 51.3 | 56.8 | 154.2 | 154.2 | |||||||||||
Transition and integration costs | 4.0 | 1.1 | 8.5 | 2.2 | |||||||||||
Total expenses | 196.0 | 210.1 | 590.9 | 589.8 | |||||||||||
Operating income | 67.8 | 57.0 | 193.2 | 174.7 | |||||||||||
Operating margin | 25.7 | % | 21.3 | % | 24.6 | % | 22.9 | % | |||||||
Interest expense | (14.1 | ) | (16.9 | ) | (44.8 | ) | (50.6 | ) | |||||||
Other expense, net | (0.6 | ) | (1.4 | ) | (17.1 | ) | (6.2 | ) | |||||||
Earnings before income taxes | 53.1 | 38.7 | 131.3 | 117.9 | |||||||||||
Income tax expense | 9.2 | 6.3 | 24.3 | 19.2 | |||||||||||
Net earnings | $ | 43.9 | $ | 32.4 | $ | 107.0 | $ | 98.7 | |||||||
Key Performance Metrics (Non-GAAP) | |||||||||||||||
Adjusted Revenues | $ | 264.8 | $ | 268.6 | $ | 787.7 | $ | 770.3 | |||||||
Adjusted EBITDA | $ | 128.2 | $ | 119.8 | $ | 373.9 | $ | 346.4 | |||||||
Adjusted EBITDA Margin | 48.4 | % | 44.6 | % | 47.5 | % | 45.0 | % |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 263.8 | $ | 267.1 | $ | 784.1 | $ | 764.5 | |||||||
Deferred revenue purchase accounting adjustment | 1.0 | 1.5 | 3.6 | 5.8 | |||||||||||
Adjusted Revenues | $ | 264.8 | $ | 268.6 | $ | 787.7 | $ | 770.3 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net earnings | $ | 43.9 | $ | 32.4 | $ | 107.0 | $ | 98.7 | |||||||
Depreciation and amortization | 51.3 | 56.8 | 154.2 | 154.2 | |||||||||||
Interest expense | 14.1 | 16.9 | 44.8 | 50.6 | |||||||||||
Income tax expense | 9.2 | 6.3 | 24.3 | 19.2 | |||||||||||
Other expense, net | 0.6 | 1.4 | 17.1 | 6.2 | |||||||||||
EBITDA | 119.1 | 113.8 | 347.4 | 328.9 | |||||||||||
Deferred revenue purchase accounting adjustment | 1.0 | 1.5 | 3.6 | 5.8 | |||||||||||
Equity-based compensation | 4.1 | 3.4 | 14.4 | 9.5 | |||||||||||
Debt and/or equity offering expenses | 2.4 | 0.5 | 5.8 | 0.6 | |||||||||||
Spin-off related transition costs | 1.6 | — | 2.7 | — | |||||||||||
Acquisition-related costs | — | 0.6 | — | 1.6 | |||||||||||
Adjusted EBITDA | $ | 128.2 | $ | 119.8 | $ | 373.9 | $ | 346.4 | |||||||
Adjusted EBITDA Margin | 48.4 | % | 44.6 | % | 47.5 | % | 45.0 | % |
Segment Financial Results
Revenues
The following table sets forth revenues by segment for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | Six months ended | | | | | |
| ||||||||
| | June 30, | | Variance | | June 30, | | Variance |
| ||||||||||||||
|
| 2021 |
| 2020 |
| $ | | % |
| 2021 |
| 2020 |
| | $ | | % | | |||||
Software Solutions | | $ | 305.4 | | $ | 245.1 | | $ | 60.3 | | 25 | % | $ | 601.2 | | $ | 489.8 | | $ | 111.4 | | 23 | % |
Data and Analytics | |
| 55.9 | |
| 48.2 | |
| 7.7 | | 16 | % |
| 109.8 | |
| 94.3 | |
| 15.5 | | 16 | % |
Corporate and Other(1) | |
| — | |
| (0.2) | |
| 0.2 | | NM | |
| — | |
| (0.3) | |
| 0.3 | | NM | |
Total | | $ | 361.3 | | $ | 293.1 | | $ | 68.2 | | 23 | % | $ | 711.0 | | $ | 583.8 | | $ | 127.2 | | 22 | % |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Software Solutions | $ | 224.5 | $ | 221.0 | $ | 665.6 | $ | 636.6 | |||||||
Data and Analytics | 40.3 | 47.6 | 122.1 | 133.7 | |||||||||||
Corporate and Other (1) | (1.0 | ) | (1.5 | ) | (3.6 | ) | (5.8 | ) | |||||||
Total | $ | 263.8 | $ | 267.1 | $ | 784.1 | $ | 764.5 |
(1) | Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP. |
Software Solutions
Revenues were $224.5$305.4 million in the three months ended SeptemberJune 30, 20172021 compared to $221.0$245.1 million in the 20162020 period, an increase of $3.5$60.3 million, or 2%25%. Our servicing software business grew 6%solutions revenues increased 13%, or $11.1$23.5 million, primarily driven by increased revenues from new and existing clients on MSP®, including higher loan volumes on our core servicing software solution, which increased 3.1% to 33.4 million average loans, and price increases, partially offset by lower specialty servicing volumes.usage-based revenues. Our origination software business declined 17%solutions revenues increased 61%, or $7.6$36.8 million, primarily driven by lower Exchange volumes as a resultrevenues of $37.3 million related to the 43% declineOptimal Blue acquired business and revenues from new and existing clients, partially offset by higher software license revenues in refinancing originations as reported by the Mortgage Bankers Association ("MBA").
Revenues were $665.6$601.2 million in the ninesix months ended SeptemberJune 30, 20172021 compared to $636.6$489.8 million in the 20162020 period, an increase of $29.0$111.4 million, or 5%23%. Our servicing software business grewsolutions revenues increased 8%, or $40.6$30.5 million, primarily driven by increased revenues from new and existing clients on MSP®, including higher loan volumes on our core servicing software solution, which increased 2.9% to 32.8 million average loans, price increasesusage-based revenues, and higher transactional volumes.revenue per loan, partially offset by approximately $11 million of lower foreclosure-related revenues due to the foreclosure moratorium as part of the CARES Act. Our origination software business declined 9%solutions revenues increased 74%, or $11.6$80.9 million, primarily driven by lower Exchangerevenues of $72.2 million related to the Optimal Blue acquired business, increased revenues from new and existing clients, higher professional services and higher origination volumes, as a result of a decline in refinancing originations, consulting revenues and client contract termination fees, partially offset by higher software license revenues in the eLynx acquisition.
Data and Analytics
Revenues were $40.3$55.9 million in the three months ended SeptemberJune 30, 20172021 compared to $47.6$48.2 million in the 20162020 period, a decreasean increase of $7.3$7.7 million, or 15%16%. The decreaseincrease was primarily driven by the effect of the Property Insight realignment, partially offset by
Revenues were $122.1$109.8 million in the ninesix months ended SeptemberJune 30, 20172021 compared to $133.7$94.3 million in the 20162020 period, a decreasean increase of $11.6$15.5 million, or 9%16%. The decreaseincrease was primarily driven by the effect of the Property Insight realignment, partially offset by incrementalstrong sales execution across nearly all business lines, revenues from the Motivity acquisitionacquired businesses and growth in our property datahigher origination volumes.
EBITDA and multiple listing service businesses. Had the realignment taken place on January 1, 2016, Black Knight revenuesEBITDA margin
The following tables set forth EBITDA (in millions) and EBITDA margin by segment for the nine months ended September 30, 2016 would have been lower by $23.3 million.periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | Six months ended | | | | | |
| ||||||||
| | June 30, | | Variance | | June 30, | | Variance |
| ||||||||||||||
|
| 2021 |
| 2020 |
| $ | | % | | 2021 |
| 2020 |
| $ | | % | | ||||||
Software Solutions | | $ | 174.8 | | $ | 146.2 | | $ | 28.6 | | 20 | % | $ | 345.7 | | $ | 285.6 | | $ | 60.1 | | 21 | % |
Data and Analytics | |
| 20.8 | |
| 16.1 | |
| 4.7 | | 29 | % |
| 40.5 | |
| 30.7 | |
| 9.8 | | 32 | % |
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| | | | | | | | | | | | |
| | Three months ended | | | Six months ended | | | |||||
| | June 30, | | Variance | | June 30, | | Variance | ||||
|
| 2021 |
| 2020 |
| Basis points |
| 2021 |
| 2020 |
| Basis points |
Software Solutions |
| 57.2 | % | 59.6 | % | (240) |
| 57.5 | % | 58.3 | % | (80) |
Data and Analytics |
| 37.2 | % | 33.4 | % | 380 |
| 36.9 | % | 32.6 | % | 430 |
Software Solutions
EBITDA was $174.8 million in the three months ended SeptemberJune 30, 20172021 compared to $152.2$146.2 million in the 20162020 period, an increase of $28.6 million, or 20%, with an EBITDA margin of 57.2%, a decrease of $11.5 million, or 8%. Consolidated Operating expenses were $428.2240 basis points from the 2020 period. The EBITDA margin decrease was primarily driven by revenue mix and increased investments in innovation and client support.
EBITDA was $345.7 million in the ninesix months ended SeptemberJune 30, 20172021 compared to $433.4$285.6 million in the 20162020 period, an increase of $60.1 million, or 21%, with an EBITDA margin of 57.5%, a decrease of $5.280 basis points from the 2020 period. The EBITDA margin decrease was driven by revenue mix and increased investments in innovation and client support.
Data and Analytics
EBITDA was $20.8 million in the three months ended June 30, 2021 compared to $16.1 million in the 2020 period, an increase of $4.7 million, or 1%.29%, with an EBITDA margin of 37.2%, an increase of 380 basis points from the 2020 period. The changesEBITDA margin increase was primarily driven by incremental margins on revenue growth.
EBITDA was $40.5 million in operating expenses are discussed further at the segment level below.
Consolidated Financial Results
Operating Expenses
The following table sets forth operating expenses by segment for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | Six months ended | | | | | |
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| | June 30, | | Variance | | June 30, | | Variance |
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|
| 2021 |
| 2020 |
| $ | | % | | 2021 |
| 2020 |
| $ | | % |
| ||||||
Software Solutions | | $ | 130.6 | | $ | 98.9 | | $ | 31.7 | | 32 | % | $ | 255.5 | | $ | 204.2 | | $ | 51.3 | | 25 | % |
Data and Analytics | |
| 35.1 | |
| 32.1 | |
| 3.0 | | 9 | % |
| 69.3 | |
| 63.6 | |
| 5.7 | | 9 | % |
Corporate and Other(1) | |
| 31.3 | |
| 24.5 | |
| 6.8 | | 28 | % |
| 58.4 | |
| 50.1 | |
| 8.3 | | 17 | % |
Total | | $ | 197.0 | | $ | 155.5 | | $ | 41.5 | | 27 | % | $ | 383.2 | | $ | 317.9 | | $ | 65.3 | | 21 | % |
(1) | Operating expenses for Corporate and Other include equity-based compensation, including certain related payroll taxes, of $13.2 million and $9.5 million for the three months ended June 30, 2021 and 2020, respectively, and $23.7 million and $21.2 million for the six months ended June 30, 2021 and 2020, respectively. |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Software Solutions | $ | 93.0 | $ | 95.9 | $ | 277.7 | $ | 273.2 | |||||||
Data and Analytics | 32.7 | 39.2 | 99.2 | 111.7 | |||||||||||
Corporate and Other | 15.0 | 17.1 | 51.3 | 48.5 | |||||||||||
Total | $ | 140.7 | $ | 152.2 | $ | 428.2 | $ | 433.4 |
The increase in Operating expenses were $93.0 million in the three months ended SeptemberJune 30, 20172021 compared to $95.9 million in the 20162020 period a decrease of $2.9 million, or 3%. The decrease was primarily due to lower net personnel costs.
The increase in Operating expenses were $99.2 million in the ninesix months ended SeptemberJune 30, 20172021 compared to $111.7 million in the 20162020 period a decrease of $12.5 million, or 11%. The decrease was primarily driven by the Property Insight realignment, partially offset by the Motivity acquisition and the effect of prior year acquisitions, higher net personnel expense, including higher medical costs, associated with the data hub.
32
Depreciation and Amortization
The following table sets forth depreciation and amortization by segment for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | Six months ended | | | | | |
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| | June 30, | | Variance | | June 30, | | Variance |
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|
| 2021 |
| 2020 |
| $ | | % | | 2021 |
| 2020 |
| $ | | % |
| ||||||
Software Solutions | | $ | 33.2 | | $ | 30.2 | | $ | 3.0 | | 10 | % | $ | 64.4 | | $ | 60.5 | | $ | 3.9 | | 6 | % |
Data and Analytics | |
| 3.7 | |
| 3.8 | |
| (0.1) | | (3) | % |
| 7.5 | |
| 7.8 | |
| (0.3) | | (4) | % |
Corporate and Other(1) | |
| 53.5 | |
| 24.6 | |
| 28.9 | | 117 | % |
| 106.3 | |
| 48.0 | |
| 58.3 | | 121 | % |
Total | | $ | 90.4 | | $ | 58.6 | | $ | 31.8 | | 54 | % | $ | 178.2 | | $ | 116.3 | | $ | 61.9 | | 53 | % |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Software Solutions | $ | 24.3 | $ | 29.0 | $ | 74.9 | $ | 80.2 | |||||||
Data and Analytics | 3.7 | 2.1 | 11.0 | 6.5 | |||||||||||
Corporate and Other (1) | 23.3 | 25.7 | 68.3 | 67.5 | |||||||||||
Total | $ | 51.3 | $ | 56.8 | $ | 154.2 | $ | 154.2 |
(1) | Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP. |
The increase in Depreciation and amortization was $24.3in the three months ended June 30, 2021 compared to the 2020 period is primarily related to the amortization of acquired intangible assets from acquisitions.
The increase in Depreciation and amortization in the six months ended June 30, 2021 compared to the 2020 period is primarily related to the amortization of acquired intangible assets from acquisitions.
Transition and Integration Costs
Transition and integration costs were $4.3 million in the three months ended SeptemberJune 30, 20172021 compared to $29.0$2.5 million in the 2016 period, a decrease of $4.7 million. The decrease is primarily due to lower deferred contract2020 period. Transition and integration costs amortization. The 2016 period includes accelerated amortization of $2.9 million related to certain deferred implementation costs.
Interest Expense, Net
Interest expense, net was $3.7$20.9 million in the three months ended SeptemberJune 30, 20172021 compared to $2.1$13.0 million in the 20162020 period, an increase of $1.6 million. The increase is primarily due to increased depreciation from both computer hardware and new software development.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Software Solutions | $ | 107.2 | $ | 96.1 | $ | 313.0 | $ | 283.2 | |||||||
Data and Analytics | 3.9 | 6.3 | 11.9 | 15.5 | |||||||||||
Corporate and Other | (43.3 | ) | (45.4 | ) | (131.7 | ) | (124.0 | ) | |||||||
Total | $ | 67.8 | $ | 57.0 | $ | 193.2 | $ | 174.7 |
Other (Expense) Income, Net
Other expense, net was $14.1$1.0 million in the three months ended SeptemberJune 30, 20172021 compared to $16.9Other income, net of $18.8 million in the 2016 period, a decrease of $2.8 million. Consolidated Interest expense was $44.8 million in the nine months ended September 30, 2017 compared to $50.6 million in the 2016 period, a decrease of $5.8 million. The decrease is driven by interest savings from the Term B Loan repricing and debt refinancing.
Income Tax Expense
Income tax expense was $10.5 million in the three months ended SeptemberJune 30, 20172021 compared to $1.4$17.2 million in the 2016 period. Consolidated Other expense, net was $17.1 million in the nine months ended September 30, 2017 compared to $6.2 million in the 2016 period. The 2017 amount primarily includes the Senior Notes redemption, Term A Loan and Revolving Credit Facility refinancing, resolution of a legacy legal matter and the Term B Loan repricing. The 2016 amount primarily includes legal fees associated with litigation matters.
Income tax expense was $15.7 million in the 2016six months ended June 30, 2021 compared to $25.4 million in the 2020 period. Our effective tax rate was 18.5%17.1% in 2021 compared to 18.8% in 2020. For the ninesix months ended SeptemberJune 30, 2017 compared to 16.3% in the 2016 period. The increase is related to certain discrete items recorded during the period. These rates are lower than the typical federal2021 and state statutory2020, our effective tax rate becauseincludes
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the effect of our noncontrolling interests priortax benefits related to the Distribution. As a resultvesting of restricted shares of the Distribution, we no longer have any noncontrolling interests.
Equity in the 2016 period, a decrease(Losses) Earnings of $3.8 million, or 1%. The decrease reflects higher loan volumes and price increases on our core servicing software solution, that were offset by the effectUnconsolidated Affiliates, Net of Tax
Equity in (losses) earnings of unconsolidated affiliates, net of tax consists of the Property Insight realignment and lower Exchange volumes as a resultfollowing (in millions):
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Equity in losses of unconsolidated affiliates, net of tax | | $ | (5.0) | | $ | (31.0) | | $ | (8.5) | | $ | (25.4) |
Non-cash gain related to DNB's issuance of common stock, net of tax | |
| — | |
| — | |
| 9.9 | |
| — |
Sale of an equity method investment, net of tax | | | — | | | 5.0 | | | — | | | 5.0 |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | | $ | (5.0) | | $ | (26.0) | | $ | 1.4 | | $ | (20.4) |
Refer to Note 4 — Investments in Unconsolidated Affiliates in Item 1 of the 43% decline in refinancing originations as reportedPart I of this Quarterly Report on Form 10-Q, which is incorporated by the MBA.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Software Solutions | $ | 131.5 | $ | 125.1 | $ | 387.9 | $ | 363.4 | |||||||
Data and Analytics | 7.6 | 8.4 | 22.9 | 22.0 | |||||||||||
Corporate and Other | (10.9 | ) | (13.7 | ) | (36.9 | ) | (39.0 | ) | |||||||
Total | $ | 128.2 | $ | 119.8 | $ | 373.9 | $ | 346.4 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Software Solutions | 58.6 | % | 56.6 | % | 58.3 | % | 57.1 | % | |||
Data and Analytics | 18.9 | % | 17.6 | % | 18.8 | % | 16.5 | % | |||
Corporate and Other | N/A | N/A | N/A | N/A | |||||||
Total | 48.4 | % | 44.6 | % | 47.5 | % | 45.0 | % |
Liquidity and Capital Resources
Cash Requirements
Our primary sources of liquidity are our existing cash balances, cash flows from operations and borrowings on our Revolving Credit Facility.
Our primary cash requirements include operating expenses, debt service payments (principal and interest), capital expenditures (including property, equipment and computer software expenditures) and income taxtax-related payments and may include share repurchases, business acquisitions and/or dividends. Our cash requirements may also include tax distributions to holders of membership units of BKFS LLC units relating to the period before the Distribution, the timing and amount of which will be dependent upon the taxable income allocable to such holders. BKFS LLC made tax distributions of $75.3 million during the nine months ended September 30, 2017 for the 2016 tax year and 2017 tax year relating to the period before the Distribution.
We believe that our cash flowflows from operations and available cash and cash equivalents are sufficient to meet our liquidity needs, including the repayment of our outstanding debt, for at least the next 12 months. We anticipate that to the extent that we require additional liquidity, it will be funded through borrowings on our Revolving Credit Facility,revolving credit facility, the incurrence of other indebtedness, equity issuance or a combination thereof. We cannot be assured that we will be able to obtain this additional liquidity on reasonable terms, or at all. The loss of the largest lender on our Revolving Credit Facilityrevolving credit facility would reduce our borrowing capacity by $41.3$90.0 million. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot be assured that our business will generate sufficient cash flowflows from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sellissue additional equity to finance such acquisitions.
The CARES Act allows us to defer payments of $150.0our share of social security taxes until December 31, 2021 and 2022. As of June 30, 2021, we have deferred $14.8 million of payments related to employer social security taxes.
DNB Investment
As of June 30, 2021, we own 54.8 million shares of DNB common stock. As of June 30, 2021, DNB’s closing share price was $21.37 and the fair value of our investment in DNB was $1,172.1 million before tax. Assuming a statutory tax rate of 25.3%, the estimated after-tax value of our investment in DNB is $1,000.2 million. Refer to Note 4 — Investments in Unconsolidated Affiliates in Item 1 of Part I of this Quarterly Report on our Revolving Credit Facility, which increased our available capacity to $500.0 million.Form 10-Q for additional information.
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Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in millions):
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows provided by operating activities | $ | 239.8 | $ | 210.5 | ||||
Cash flows used in investing activities | (46.4 | ) | (206.1 | ) | ||||
Cash flows used in financing activities | (181.1 | ) | (131.5 | ) | ||||
Net increase (decrease) in cash and cash equivalents | $ | 12.3 | $ | (127.1 | ) |
| | | | | | | | | |
| | Six months ended June 30, | | | | ||||
|
| 2021 |
| 2020 |
| Variance | |||
Cash flows provided by operating activities | | $ | 199.2 | | $ | 195.3 | | $ | 3.9 |
Cash flows used in investing activities | |
| (116.4) | |
| (107.8) | |
| (8.6) |
Cash flows (used in) provided by financing activities | |
| (28.8) | |
| 125.3 | |
| (154.1) |
Net increase in cash and cash equivalents | | $ | 54.0 | | $ | 212.8 | | $ | (158.8) |
Operating Activities
The $3.9 million and $210.5 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in cash provided by operating activities in the ninesix months ended SeptemberJune 30, 20172021 compared to the 20162020 period is primarily related to increasedhigher earnings adjusted for non-cash amortization, partially offset by higher tax payments and the increase in non-cash expenses from the loss on extinguishment of debt and equity-based compensation.
Investing Activities
The $8.6 million and $206.1 million for the nine months ended September 30, 2017 and 2016, respectively. The decreaseincrease in cash used in investing activities in the ninesix months ended SeptemberJune 30, 2017 as2021 compared to the 20162020 period is primarily related to the eLynx and Motivity acquisitionssale of an equity method investment in 2016 and lower capital expendituresthe prior year period.
Financing Activities
The $154.1 million increase in 2017.
Financing
For a description of our financing arrangements, see Note 8 — Long-Term Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2.
Contractual Obligations
On March 10, 2021, BKIS entered into an amended and restated credit and guarantee agreement. Refer to Note 8 — Long-Term Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2.
Our long-term contractual obligations generally include our debt and related interest payments, data processing and maintenance commitments purchase commitments,and operating and finance lease payments for our offices, data centers, property and capital lease payments on certain computer equipment. Other than the items included below, thereThere were no significant changes to our contractual obligations from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016.
Share Repurchase Program
On February 12, 2020, our Board of 2017. During the nine months ended September 30, 2017, we repurchased approximately 1.2Directors approved a three-year share repurchase program authorizing us to repurchase up to 10.0 million shares of our BKFS Class Aoutstanding common stock for $46.6 million,through February 12, 2023, through open market purchases, negotiated transactions or an averageother means, in accordance with applicable securities laws and other restrictions.
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There were no share repurchases during the three months ended June 30, 2021. A summary of September 30, 2017, we had approximately 8.8 million shares remainingshare repurchases under our share repurchase authorization.
| | | | | | |
| | | | | | Shares remaining under repurchase |
Total number of shares repurchased | | Aggregate purchase price | | Average price paid per share | | authorization as of June 30, 2021 |
0.6 | | $46.7 | | $ 75.19 | | 9.4 |
Indemnifications and Warranties
We often agree to indemnify our clients against damages and costs resulting from claims of patent, copyright, trademark infringement or breaches of confidentiality associated with use of our software through software licensing agreements. Historically, we have not made any payments under such indemnifications, but continue to monitor the conditions that are subject to the indemnifications to identify whether a loss has occurred that is both probable and estimable that would require recognition. In addition, we warrant to clients that our software operates substantially in accordance with the software specifications. Historically, no costs have been incurred related to software warranties and none are expected in the future, and as such no accruals for warranty costs have been made.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements other than operating leases and interest rate swaps.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2016.
Market Risk
We regularly assess market risks and have established policies and business practices designed to protect against the adverse effects of these exposures.
We are exposed to market risks primarily from changes in interest rates. We use interest rate swaps to manage interest rate risk. We do not use interest rate swaps for trading purposes, to generate income or to engage in speculative activity.Interest Rate Risk
In addition to existing cash balances and cash provided by operating activities, we use fixed rate and variable rate debt to finance our operations.
Our Senior Notes represent our fixed-rate long-term debt. Refer to Note 8 — Long-Term Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q. The carrying value of our Senior Notes was $988.9 million as of June 30, 2021. The fair value of our Senior Notes was approximately $997.5 million as of June 30, 2021. The potential reduction in fair value of the Senior Notes from a hypothetical 10 percent increase in market interest rates would not be material to the overall fair value of the debt.
We enter into interest rate swap agreements to hedge forecasted monthly interest rate payments on our variable rate debt. We are exposed to interest rate risk on theseour variable rate debt obligations and related interest rate swaps. WeAs of June 30, 2021, we had $1,558.1$1,248.0 million in long-term debt principal outstanding as of September 30, 2017. The Senior Notes were redeemed on April 26, 2017 and representedfrom our Facilities, all of our fixed-rate long-termwhich is variable rate debt, obligations.
As of June 30, 2021, the Notes to the Condensed Consolidated Financial Statements (Unaudited)Facilities represent our variable rate long-term debt obligations as of September 30, 2017. The principal outstanding relatedexposed to these facilities was $1,558.1 million as of September 30, 2017.interest rate risk. We performed a sensitivity analysis on the principal amount of our long-term debt subject to variable interest rates as of September 30, 2017. This sensitivity analysis is based solely on the principal amount of such debt as of SeptemberJune 30, 2017, and does not take into account any changes that occurred in2021, as well as the prior 12 months or that may take place in the next 12 months in the amounteffect of our outstanding debt or in the notional amount of outstanding interest rate swaps. Further, in this sensitivity analysis, the change in interest rates is assumed to be applicable for an entire year. An increase of 100 basis points in the applicable interest rate would cause an increase in interest expense of $15.6$8.6 million on an annual basis ($7.63.0 million including the effect of our current interest rate swaps). A decrease of 100 basis points in the applicable interest rate to 0% would cause a decrease in interest expense of $13.6$3.5 million on an annual basis ($5.6
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($1.6 million including the effect of our current interest rate swaps) as the 1-week and 1-month LIBOR rate was 1.25%were approximately 0.09% and 0.10%, respectively, as of SeptemberJune 30, 2017.
As of June 30, 2021, we entered into anhave the following interest rate swap agreement to hedge forecasted monthly interest rate payments on $200.0 million of our floating rate debt (the "September 2017 Swap Agreement"agreements (collectively, the "Swap Agreements"). (in millions):
| | | | | | |
Effective dates |
| Notional amount |
| Fixed rates |
| |
March 31, 2017 through March 31, 2022 | | $ | 200.0 |
| 2.08 | % |
September 29, 2017 through September 30, 2021 | | $ | 200.0 |
| 1.69 | % |
April 30, 2018 through April 30, 2023 | | $ | 250.0 |
| 2.61 | % |
January 31, 2019 through January 31, 2023 | | $ | 300.0 |
| 2.65 | % |
Under the terms of the September 2017 Swap Agreement, we receive payments based on the 1-month LIBOR rate and pay a fixed rate of 1.69%. The effective term for the September 2017 Swap Agreement is September 29, 2017 through September 30, 2021.
The Swap Agreements were designated as cash flow hedging instruments. A portion of the amount included in Accumulated other comprehensive earnings (loss)loss is reclassified into Interest expense, net as a yield adjustment as interest payments are madeis either paid or received on the hedged debt. In accordance with the authoritative guidance for fair value measurements, theThe inputs used to determine the estimated fair value of our interest rate swaps are levelLevel 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreements.
Evaluation of Disclosure Controls and Procedures
As of SeptemberJune 30, 2017,2021, under the supervision and with the participation of our Chief Executive Officer ("CEO") and Executive Vice President and Chief Financial Officer ("CFO"), management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.
Based on that evaluation, our CEO and CFO concluded that as of SeptemberJune 30, 2017,2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit with the SEC are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There
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Item 1. Legal Proceedings
See discussion of legal proceedings in Note 611 —
There have been no material changes in our risk factors since the significant risks and uncertainties described infiling of our Annual Report on Form 10-K for the year ended December 31, 2016, we identified the following additional risks as a result of the completion of the tax-free distribution by FNF of all 83.3 million shares of BKFS Class B common stock that it owned (the “Spin-off”) and related transactions on September 29, 2017 (together with the Spin-off, the “Distribution’). See “Distribution of FNF’s Ownership Interest and Related Transactions” in Note 1 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included in Item 1 of Part 1 of this report.
None.
None.
Not applicable.
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(a) | Exhibits |
| | |
Exhibit | ||
No. | | Description |
10.1 | | |
(Directors) under Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan | ||
10.2 | | |
31.1 | | |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | | |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | | |
32.2 | | |
101.INS | | Inline XBRL Instance Document* |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
104 | | Cover Page Interactive |
(1) | A management or compensatory plan or arrangement required to be filled as an exhibit to this report pursuant to Item 601(b)(10)(iii) of Regulation S-K. |
* | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |||
| |||||
BLACK KNIGHT, INC. | |||||
| (registrant) | ||||
| | | |||
Date: August 5, 2021 | By: | /s/ Kirk T. Larsen | |||
| | Kirk T. Larsen | |||
| | Executive Vice President and Chief Financial Officer | |||
| | (Principal Financial Officer) | |||
| | | |||
Date: August 5, 2021 | By: | /s/ Michele M. Meyers | |||
| | Michele M. Meyers | |||
| | Chief Accounting Officer and Treasurer | |||
| | (Principal Accounting Officer) |
40