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 153,469,978156,025,027 shares outstanding of the Registrant'sRegistrant’s common stock as of November 1, 2017. August 3, 2022.
QUARTERLY REPORT
Quarter Ended SeptemberJune 30, 2017
TABLE OF CONTENTS
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37 | |
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, 2022 | | | December 31, 2021 | |
ASSETS | | | | | | |
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 38.0 | | $ | 77.1 |
Trade receivables, net | |
| 203.2 | |
| 191.8 |
Prepaid expenses and other current assets | |
| 97.7 | |
| 83.0 |
Receivables from related parties | |
| 6.1 | |
| 0.2 |
Total current assets | |
| 345.0 | |
| 352.1 |
Property and equipment, net | |
| 146.6 | |
| 154.5 |
Software, net | |
| 469.6 | |
| 497.0 |
Other intangible assets, net | |
| 539.6 | |
| 613.2 |
Goodwill | |
| 3,817.1 | |
| 3,817.3 |
Investments in unconsolidated affiliates | |
| 171.4 | |
| 490.5 |
Deferred contract costs, net | |
| 198.0 | |
| 196.0 |
Other non-current assets | |
| 241.2 | |
| 230.3 |
Total assets | | $ | 5,928.5 | | $ | 6,350.9 |
LIABILITIES AND EQUITY | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Trade accounts payable and other accrued liabilities | | $ | 59.8 | | $ | 64.5 |
Income taxes payable | | | 46.8 | | | 11.8 |
Accrued compensation and benefits | |
| 75.4 | |
| 91.4 |
Current portion of debt | |
| 33.6 | |
| 32.5 |
Deferred revenues | |
| 68.8 | |
| 64.6 |
Total current liabilities | |
| 284.4 | |
| 264.8 |
Deferred revenues | |
| 62.0 | |
| 81.5 |
Deferred income taxes | |
| 241.3 | |
| 284.1 |
Long-term debt, net of current portion | |
| 2,736.7 | |
| 2,362.6 |
Other non-current liabilities | |
| 56.6 | |
| 78.7 |
Total liabilities | |
| 3,381.0 | |
| 3,071.7 |
Commitments and contingencies (Note 10) | |
|
| |
|
|
Redeemable noncontrolling interests | |
| 47.4 | |
| 1,188.8 |
Equity: | |
|
| |
|
|
Common stock; $0.0001 par value; 550,000,000 shares authorized; 160,040,598 shares issued and 156,031,830 shares outstanding as of June 30, 2022, and 160,040,598 shares issued and 155,357,705 shares outstanding as of December 31, 2021 | |
| 0 | |
| 0 |
Preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, NaN as of June 30, 2022 and December 31, 2021 | |
| 0 | |
| 0 |
Additional paid-in capital | |
| 1,367.8 | |
| 1,410.9 |
Retained earnings | |
| 1,368.2 | |
| 968.2 |
Accumulated other comprehensive loss | |
| (5.5) | |
| (17.5) |
Treasury stock, at cost, 4,008,768 shares as of June 30, 2022 and 4,682,893 shares as of December 31, 2021 | |
| (230.4) | |
| (271.2) |
Total shareholders’ equity | |
| 2,500.1 | |
| 2,090.4 |
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | | $ | 5,928.5 | | $ | 6,350.9 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
1
BLACK KNIGHT, INC.
(In millions, except per share data)
(Unaudited)
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Revenues | | $ | 394.5 | | $ | 361.3 | | $ | 781.7 | | $ | 711.0 |
Expenses: | |
|
| | |
| |
|
| |
|
|
Operating expenses | |
| 216.8 | | | 197.0 | |
| 424.7 | |
| 383.2 |
Depreciation and amortization | |
| 92.5 | | | 90.4 | |
| 184.0 | |
| 178.2 |
Transition and integration costs | |
| 8.2 | | | 4.3 | |
| 15.8 | |
| 12.2 |
Total expenses | |
| 317.5 | |
| 291.7 | |
| 624.5 | |
| 573.6 |
Operating income | |
| 77.0 | |
| 69.6 | |
| 157.2 | |
| 137.4 |
Other income and expense: | |
|
| |
|
| |
|
| |
|
|
Interest expense, net | |
| (22.6) | | | (20.9) | |
| (43.7) | |
| (41.2) |
Other expense, net | |
| (2.4) | | | (1.0) | |
| (3.6) | |
| (4.2) |
Total other expense, net | |
| (25.0) | |
| (21.9) | |
| (47.3) | |
| (45.4) |
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates | |
| 52.0 | |
| 47.7 | |
| 109.9 | |
| 92.0 |
Income tax expense | |
| 11.6 | | | 10.5 | | | 10.5 | |
| 15.7 |
Earnings before equity in (losses) earnings of unconsolidated affiliates | |
| 40.4 | |
| 37.2 | |
| 99.4 | |
| 76.3 |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | |
| (0.1) | | | (5.0) | |
| 303.0 | |
| 1.4 |
Net earnings | |
| 40.3 | |
| 32.2 | |
| 402.4 | |
| 77.7 |
Net losses attributable to redeemable noncontrolling interests | |
| — | | | 7.5 | |
| 2.5 | |
| 16.1 |
Net earnings attributable to Black Knight | | $ | 40.3 | | $ | 39.7 | | $ | 404.9 | | $ | 93.8 |
Other comprehensive earnings (loss): | |
|
| |
|
| |
|
| |
|
|
Unrealized holding gains (losses), net of tax(1) | |
| 2.3 | | | (0.2) | | | 6.6 | | | 0.3 |
Reclassification adjustments for losses included in net earnings, net of tax(2) | |
| 2.0 | | | 4.0 | | | 5.2 | | | 7.9 |
Total unrealized gains on interest rate swaps, net of tax | |
| 4.3 | |
| 3.8 | |
| 11.8 | |
| 8.2 |
Foreign currency translation adjustment, net of tax (3) | |
| (0.4) | | | (0.1) | | | (0.6) | | | (0.4) |
Unrealized (losses) gains on investments in unconsolidated affiliates, net of tax(4) | |
| (2.4) | | | 1.5 | | | 0.8 | | | (1.6) |
Other comprehensive earnings | |
| 1.5 | |
| 5.2 | |
| 12.0 | |
| 6.2 |
Comprehensive earnings | |
| 41.8 | |
| 37.4 | |
| 414.4 | |
| 83.9 |
Net losses attributable to redeemable noncontrolling interests | |
| — | | | 7.5 | |
| 2.5 | |
| 16.1 |
Comprehensive earnings attributable to Black Knight | | $ | 41.8 | | $ | 44.9 | | $ | 416.9 | | $ | 100.0 |
Net earnings per share attributable to Black Knight common shareholders: | |
|
| |
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| |
|
| |
|
|
Basic | | $ | 0.26 | | $ | 0.26 | | $ | 2.62 | | $ | 0.60 |
Diluted | | $ | 0.26 | | $ | 0.25 | | $ | 2.60 | | $ | 0.60 |
Weighted average shares of common stock outstanding (see Note 5): | |
| | | | | |
|
| |
|
|
Basic | |
| 154.5 | |
| 155.4 | |
| 154.4 | |
| 155.5 |
Diluted | |
| 155.6 | |
| 155.7 | |
| 155.5 | |
| 155.8 |
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 expense of $0.9 million and income tax benefit of $0.1 million for the three months ended June 30, 2022 and 2021, respectively, and income tax expense of $2.3 million and $0.1 million for the six months ended June 30, 2022 and 2021, 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 $0.2 million for the three and six months ended June 30, 2022 and less than $0.1 million for the three and six months ended |
(4) | Net of income tax benefit of $0.8 million and |
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, 2022 | |||||||||||||||||||||||
| | | | | | | | | | | | | 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, 2022 |
| 160.0 | | $ | — | | $ | 1,364.8 | | $ | 1,327.4 | | $ | (7.0) |
| 4.1 | | $ | (234.2) | | $ | 2,451.0 | | $ | 40.2 |
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — | |
| — | |
| (7.2) | |
| — | |
| — |
| — | |
| — | |
| (7.2) | |
| 7.2 |
Grant of restricted shares of common stock |
| — | |
| — | |
| (4.2) | |
| — | |
| — |
| (0.1) | |
| 4.2 | |
| — | |
| — |
Forfeitures of restricted shares of common stock |
| — | |
| — | |
| 0.2 | |
| — | |
| — |
| — | |
| (0.2) | |
| — | |
| — |
Tax withholding payments for restricted share vesting |
| — | |
| — | |
| (0.3) | |
| — | |
| — |
| — | |
| — | |
| (0.3) | |
| — |
Vesting of restricted shares granted from treasury stock |
| — | |
| — | |
| 0.2 | |
| — | |
| — |
| — | |
| (0.2) | |
| — | |
| — |
Equity-based compensation expense |
| — | |
| — | |
| 12.9 | |
| — | |
| — |
| — | |
| — | |
| 12.9 | |
| — |
Net earnings |
| — | |
| — | |
| — | |
| 40.3 | |
| — |
| — | |
| — | |
| 40.3 | |
| — |
Equity-based compensation expense of unconsolidated affiliates |
| — | |
| — | |
| — | |
| 0.5 | |
| — |
| — | |
| — | |
| 0.5 | |
| — |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| — | |
| (0.4) |
| — | |
| — | |
| (0.4) | |
| — |
Unrealized gains on interest rate swaps, net |
| — | |
| — | |
| — | |
| — | |
| 4.3 |
| — | |
| — | |
| 4.3 | |
| — |
Other comprehensive loss on investments in unconsolidated affiliates |
| — | |
| — | |
| — | |
| — | |
| (2.4) |
| — | |
| — | |
| (2.4) | |
| — |
Other | | — | | | — | | | 1.4 | | | — | | | — | | — | | | — | | | 1.4 | | | — |
Balance, June 30, 2022 |
| 160.0 | | $ | — | | $ | 1,367.8 | | $ | 1,368.2 | | $ | (5.5) |
| 4.0 | | $ | (230.4) | | $ | 2,500.1 | | $ | 47.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
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, 2022 | |||||||||||||||||||||||
| | | | | | | | | | | | | 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, 2021 |
| 160.0 | | $ | — | | $ | 1,410.9 | | $ | 968.2 | | $ | (17.5) |
| 4.7 | | $ | (271.2) | | $ | 2,090.4 | | $ | 1,188.8 |
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — | |
| — | |
| (17.1) | |
| — | |
| — |
| — | |
| — | |
| (17.1) | |
| 17.1 |
Acquisition of remaining redeemable noncontrolling interests in Optimal Blue Holdco, LLC | | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (1,156.0) |
Grant of restricted shares of common stock |
| — | |
| — | |
| (50.8) | |
| — | |
| — |
| (0.9) | |
| 50.8 | |
| — | |
| — |
Forfeitures of restricted shares of common stock |
| — | |
| — | |
| 1.2 | |
| — | |
| — |
| — | |
| (1.2) | |
| — | |
| — |
Tax withholding payments for restricted share vesting |
| — | |
| — | |
| (11.0) | |
| — | |
| — |
| — | |
| — | |
| (11.0) | |
| — |
Vesting of restricted shares granted from treasury stock |
| — | |
| — | |
| 8.8 | |
| — | |
| — |
| 0.2 | |
| (8.8) | |
| — | |
| — |
Equity-based compensation expense |
| — | |
| — | |
| 23.6 | |
| — | |
| — |
| — | |
| — | |
| 23.6 | |
| — |
Net earnings (losses) |
| — | |
| — | |
| — | |
| 404.9 | |
| — |
| — | |
| — | |
| 404.9 | |
| (2.5) |
Equity-based compensation expense of unconsolidated affiliates |
| — | |
| — | |
| — | |
| (4.9) | |
| — |
| — | |
| — | |
| (4.9) | |
| — |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| — | |
| (0.6) |
| — | |
| — | |
| (0.6) | |
| — |
Unrealized gains on interest rate swaps, net |
| — | |
| — | |
| — | |
| — | |
| 11.8 |
| — | |
| — | |
| 11.8 | |
| — |
Other comprehensive gains on investments in unconsolidated affiliates |
| — | |
| — | |
| — | |
| — | |
| 0.8 |
| — | |
| — | |
| 0.8 | |
| — |
Other | | — | | | — | | | 2.2 | | | — | | | — | | — | | | — | | | 2.2 | | | — |
Balance, June 30, 2022 |
| 160.0 | | $ | — | | $ | 1,367.8 | | $ | 1,368.2 | | $ | (5.5) |
| 4.0 | | $ | (230.4) | | $ | 2,500.1 | | $ | 47.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
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, | ||||
| | 2022 | | 2021 | ||
Cash flows from operating activities: |
| |
| | | |
Net earnings | | $ | 402.4 | | $ | 77.7 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
|
| | | |
Depreciation and amortization | |
| 184.0 | | | 178.2 |
Amortization of debt issuance costs and original issue discount | |
| 1.9 | | | 2.0 |
Loss on extinguishment of debt | | | 0 | | | 2.5 |
Deferred income taxes, net | |
| (144.9) | | | (3.9) |
Equity in earnings of unconsolidated affiliates, net of tax | |
| (303.0) | | | (1.4) |
Equity-based compensation | |
| 23.6 | | | 22.5 |
Changes in assets and liabilities, net of acquired assets and liabilities: | |
| | | | |
Trade receivables, including receivables from related parties | |
| (17.4) | | | (10.7) |
Prepaid expenses and other assets | |
| (28.1) | | | (36.8) |
Deferred contract costs | |
| (21.7) | | | (24.1) |
Deferred revenues | |
| (15.3) | | | 6.4 |
Trade accounts payable and other liabilities | |
| 8.3 | | | (13.2) |
Net cash provided by operating activities | |
| 89.8 | | | 199.2 |
Cash flows from investing activities: | |
|
| | |
|
Additions to property and equipment | |
| (11.8) | | | (11.5) |
Additions to software | |
| (43.7) | | | (45.4) |
Business acquisitions, net of cash acquired | |
| 0 | | | (48.3) |
Asset acquisitions | |
| 0 | | | (10.0) |
Other investing activities | | | (4.0) | | | (1.2) |
Net cash used in investing activities | |
| (59.5) | | | (116.4) |
Cash flows from financing activities: | |
|
| | |
|
Revolver borrowings | |
| 585.8 | | | 260.3 |
Revolver payments | |
| (195.1) | | | (210.0) |
Term loan borrowings | | | 0 | | | 1.6 |
Term loan payments | |
| (14.4) | | | — |
Payments made for redeemable noncontrolling interests | |
| (433.5) | | | — |
Purchases of treasury stock | |
| 0 | | | (46.7) |
Tax withholding payments for restricted share vesting | |
| (11.0) | | | (24.4) |
Finance lease payments | |
| (0.8) | | | (2.0) |
Debt issuance costs paid | |
| 0 | | | (7.6) |
Other financing activities | |
| (0.4) | | | — |
Net cash used in financing activities | |
| (69.4) | | | (28.8) |
Net (decrease) increase in cash and cash equivalents | |
| (39.1) | | | 54.0 |
Cash and cash equivalents, beginning of period | |
| 77.1 | | | 34.7 |
Cash and cash equivalents, end of period | | $ | 38.0 | | $ | 88.7 |
Supplemental cash flow information: | |
|
| | |
|
Interest paid, net | | $ | (41.9) | | $ | (40.0) |
Income taxes paid, net | | $ | (124.3) | | $ | (42.7) |
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, 20162021 filed with the Securities and Exchange Commission ("SEC") on February 24, 2017.
Description of Business
We are a leadingpremier provider of integrated, innovative, mission-critical, high-performance software solutions, data and analytics solutions to the U.S. mortgage and consumer loan, real estate markets. Our mission is to transform the markets we serve by delivering innovative solutions that are integrated across the homeownership lifecycle and capital market verticals. We believethat result in realized efficiencies, reduced risk and new opportunities for our clients to help them achieve greater levels of success.
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.net earnings to arrive at Net earnings attributable to Black Knight.
Redeemable Noncontrolling Interests
Prior to February 15, 2022, Optimal Blue Holdco, LLC (“Optimal Blue Holdco”) was a non-wholly owned subsidiary and considered a variable interest entity. We were 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 controlled Optimal Blue Holdco and its subsidiaries, and we consolidated its financial position and results of operations. Prior to February 15, 2022, we owned 60% of Optimal Blue Holdco. Redeemable noncontrolling interests primarily represented 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 provided for redemption features not solely within our control, they were presented outside of shareholders' equity.
On February 15, 2022, we entered into a purchase agreement with Cannae and THL and acquired all of their issued and outstanding Class A units of Optimal Blue Holdco through Optimal Blue I, LLC (“Optimal Blue I”), a Delaware limited liability company and our wholly-owned subsidiary, in exchange for aggregate consideration of 36.4 million shares of Dun & Bradstreet Holdings, Inc. (“DNB”) common stock valued at $722.5 million and $433.5 million in cash, included as a financing cash outflow on the Condensed Consolidated Statements of Cash Flows (Unaudited), funded with borrowings under our revolving credit facility. The aggregate consideration of $1.156 billion and number of shares of DNB common stock paid to Cannae and THL was based on the 20-day volume-weighted average trading price of DNB for the period ended on February 14, 2022. As of February 15, 2022, we own 100% of the Class A units of Optimal Blue Holdco.
6
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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 813 —
Merger Agreement
On May 4, 2022, we entered into a definitive agreement to be acquired by Intercontinental Exchange, Inc. (“ICE”), a leading global provider of FNF's Ownership Interestdata, technology, and Related Transactions
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act’) and related rules, the ICE Transaction may not be completed until notifications have been given and information furnished to New BKH in exchange for 100%the Antitrust Division of the sharesUnited States Department of New BKH common stock;
(2)Condensed Consolidated Financial Statement Details
Cash and Cash Equivalents
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, 2022 |
| December 31, 2021 | ||
Cash | | $ | 28.0 | | $ | 24.0 |
Cash equivalents | |
| 10.0 | |
| 53.1 |
Cash and cash equivalents | | $ | 38.0 | | $ | 77.1 |
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, 2022 |
| December 31, 2021 | ||
Trade receivables — billed | | $ | 159.9 | | $ | 147.4 |
Trade receivables — unbilled | |
| 47.1 | |
| 47.1 |
Trade receivables | |
| 207.0 | |
| 194.5 |
Allowance for credit losses | |
| (3.8) | |
| (2.7) |
Trade receivables, net | | $ | 203.2 | | $ | 191.8 |
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)
Prepaid Expenses and will be depreciated on a straight-line basis over this period. The leased equipment was valued based on the net present valueOther Current Assets
Prepaid expenses and other current assets consist of the minimum lease payments, which was $8.4 million (netfollowing (in millions):
| | | | | | |
|
| | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Prepaid expenses | | $ | 51.2 | | $ | 44.7 |
Contract assets, net | |
| 25.5 | |
| 23.0 |
Income tax receivables | | | 11.7 | | | 6.5 |
Other current assets | |
| 9.3 | |
| 8.8 |
Prepaid expenses and other current assets | | $ | 97.7 | | $ | 83.0 |
Other Non-Current Assets
Other non-current assets consist of imputed interest of $0.1 million).
| | | | | | |
| | June 30, 2022 |
| December 31, 2021 | ||
Contract assets, net | | $ | 98.0 | | $ | 80.2 |
Property records database | | | 60.6 | | | 60.6 |
Right-of-use assets | |
| 29.0 | |
| 32.9 |
Deferred compensation plan related assets | |
| 22.7 | |
| 25.2 |
Contract credits | |
| 22.9 | |
| 23.6 |
Prepaid expenses | |
| 5.8 | |
| 4.5 |
Other | |
| 2.2 | |
| 3.3 |
Other non-current assets | | $ | 241.2 | | $ | 230.3 |
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 investingfollowing (in millions):
| | | | | | |
| | June 30, 2022 |
| December 31, 2021 | ||
Accrued interest | | $ | 12.3 | | $ | 12.3 |
Lease liabilities, current | | | 10.4 | | | 10.8 |
Trade accounts payable | |
| 10.6 | |
| 7.9 |
Other taxes payable and accrued | |
| 6.1 | |
| 4.8 |
Accrued client liabilities | | | 3.8 | | | 3.8 |
Other | |
| 16.6 | |
| 24.9 |
Trade accounts payable and accrued liabilities | | $ | 59.8 | | $ | 64.5 |
Deferred Revenues
Revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $20.6 million and financing activity for$12.1 million during the ninethree months ended SeptemberJune 30, 20172022 and 2016 was $2.22021, respectively, and $41.5 million and $8.4$29.8 million respectively,during the six months ended June 30, 2022 and relates to the unpaid portion2021, respectively.
8
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
Depreciation and amortization on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) includeincludes the following (in millions):
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 |
| | | | | | | | | | | | |
| | Three months ended June 30, |
| Six months ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Other intangible assets | | $ | 36.8 | | $ | 39.1 | | $ | 73.6 | | $ | 77.9 |
Software | | | 35.6 | | | 32.7 | | | 71.1 | | | 63.3 |
Property and equipment | |
| 9.7 | | | 10.0 | |
| 19.6 | |
| 20.2 |
Deferred contract costs | |
| 10.4 | | | 8.6 | |
| 19.7 | |
| 16.8 |
Total | | $ | 92.5 | | $ | 90.4 | | $ | 184.0 | | $ | 178.2 |
Other Non-Current Liabilities
Other non-current liabilities consist of the nine months ended September 30, 2017 includes accelerated amortization of $3.3 million recorded in the first quarter related to certain deferred implementation costs. Deferred contract costs amortization for the three and nine months ended September 30, 2016 includes accelerated amortization of $2.9 million.
| | | | | | |
| | June 30, 2022 |
| December 31, 2021 | ||
Lease liabilities, non-current | | $ | 21.4 | | $ | 26.4 |
Deferred compensation plan | | | 21.5 | | | 24.4 |
Unrealized losses on interest rate swaps (Note 7) | | | — | | | 13.9 |
Other | | | 13.7 | | | 14.0 |
Other non-current liabilities | | $ | 56.6 | | $ | 78.7 |
A
(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"). The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The fair valueits subsidiaries (“Top 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,Mind”), 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.
Goodwill | $ | 3.0 | |
Computer software | (2.6 | ) | |
Accrued compensation and benefits | (0.3 | ) | |
Other intangible assets | (0.1 | ) |
During the three and six months ended June 30, 2022, we recorded a measurement period adjustment of $0.5$0.2 million to Depreciation and amortization was recorded in the first quarter of 2017 related to our 2021 acquisition of Top of Mind that reduced Goodwill and Deferred income taxes for certain book and tax basis differences as we completed the changestax return filings for the pre-acquisition period.
(4)Investments in provisional values.
DNB is a leading global provider of business decisioning data and analytics. 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 from Contracts13.0% to 12.8% at that time.
On February 15, 2022, we exchanged 36.4 million shares of DNB common stock and $433.5 million in cash in connection with Customers ("ASC 606"))
9
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
February 14, 2022. We recognized a reviewgain of accounting policies and practices, evaluating differences from applying the requirements$305.4 million, net of tax of $102.6 million, related to this transaction. As of June 30, 2022, we own 18.5 million shares of DNB common stock for an ownership interest of approximately 4.3% of DNB’s outstanding common stock.
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.
As of June 30, 2022, DNB’s closing share price was $15.03, and the period the professional services are performed. Moreover, feesfair value of our investment in DNB was $277.7 million before tax.
Summarized consolidated financial information for certain post-implementation professional services related to minor customizationDNB is presented below (in millions):
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Current assets | | $ | 748.1 | | $ | 718.0 |
Non-current assets | |
| 8,948.5 | |
| 9,279.2 |
Total assets | | $ | 9,696.6 | | $ | 9,997.2 |
| | | | | | |
Current liabilities, including short-term debt | | $ | 948.0 | | $ | 1,004.9 |
Non-current liabilities | |
| 5,102.9 | |
| 5,247.0 |
Total liabilities | |
| 6,050.9 | |
| 6,251.9 |
Total equity | |
| 3,645.7 | |
| 3,745.3 |
Total liabilities and shareholders' equity | | $ | 9,696.6 | | $ | 9,997.2 |
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
| | | | | | | | | | | | |
Revenues | | $ | 537.3 | | $ | 520.9 | | $ | 1,073.3 | | $ | 1,025.4 |
Loss before provision for income taxes and equity in net income of affiliates | |
| (0.7) | |
| (8.5) | |
| (40.5) | |
| (42.2) |
Net loss | |
| — | |
| (50.8) | |
| (29.8) | |
| (74.1) |
Net loss attributable to DNB | | | (1.8) | |
| (51.7) | |
| (33.1) | |
| (76.7) |
Equity in (losses) earnings of hosted software solutions, determined not to be distinct from the hosted software solutions, will be deferred and recognized over the remaining hosted software contract term. In addition, based on the ongoing analysisunconsolidated affiliates, net of contract acquisition and fulfillment costs, we do not expect a significant change to our current practice for capitalizing such costs; however, we anticipate we will amortize certain capitalized contract costs over a longer time period for certain contracts based on the requirementstax consists of the new standard. Further, we currently anticipate recognizing the license portion of certain distinct term license arrangements within our Data and Analytics segment upon delivery as opposed to ratably over the license term. For contracts where the promised software license and ongoing services are not distinct from each other, the timing of revenue recognition will be over time, which is consistent with the treatment under the current revenue recognition standard.
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Equity in losses of unconsolidated affiliates, net of tax | | $ | (0.1) | | $ | (5.0) | | $ | (2.4) | | $ | (8.5) |
Non-cash gain related to DNB's issuance of common stock, net of tax | |
| — | |
| — | |
| — | |
| 9.9 |
Gain related to DNB investment, net of tax | | | — | | | — | | | 305.4 | | | — |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | | $ | (0.1) | | $ | (5.0) | | $ | 303.0 | | $ | 1.4 |
(5)Earnings Per Share
Diluted net earnings per share includes the effect of unvested restricted stock awards, restricted stock unit awards (“RSUs”) and Optimal Blue Holdco profits interests units (“OB PIUs”). For the adoptionthree and six months ended June 30, 2021, the OB PIUs were excluded from the
10
Table of ASC 606 will have on our results of operations, financial position and related disclosures.
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
diluted net earnings per share calculation is adjusted to reflect our income tax expense at an expected effective tax rate assumingbecause the conversioneffect 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, 2016their inclusion would 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, | ||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Basic: |
| |
|
| |
| | |
|
| |
|
Net earnings attributable to Black Knight | | $ | 40.3 | | $ | 39.7 | | $ | 404.9 | | $ | 93.8 |
Shares used for basic net earnings per share: | |
|
| |
|
| |
|
| |
|
|
Weighted average shares of common stock outstanding | |
| 154.5 | |
| 155.4 | |
| 154.4 | |
| 155.5 |
Basic net earnings per share | | $ | 0.26 | | $ | 0.26 | | $ | 2.62 | | $ | 0.60 |
| | | | | | | | | | | | |
Diluted: | |
|
| |
|
| |
|
| |
|
|
Net earnings attributable to Black Knight | | $ | 40.3 | | $ | 39.7 | | $ | 404.9 | | $ | 93.8 |
Shares used for diluted net earnings per share: | |
|
| |
|
| |
|
| |
|
|
Weighted average shares of common stock outstanding | |
| 154.5 | |
| 155.4 | |
| 154.4 | |
| 155.5 |
Dilutive effect of unvested restricted shares of common stock and OB PIUs | |
| 1.1 | |
| 0.3 | |
| 1.1 | |
| 0.3 |
Weighted average shares of common stock, diluted | |
| 155.6 | |
| 155.7 | |
| 155.5 | |
| 155.8 |
Diluted net earnings per share | | $ | 0.26 | | $ | 0.25 | | $ | 2.60 | | $ | 0.60 |
(6)Related Party Transactions
Our service arrangements with related parties are partypriced within the range of prices we offer to certain related party agreements, including those with FNF and THL. The following table sets forth the ownership interests of FNF, THL and other holders of Black Knight common stock (shares in millions):
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 |
DNB
DNB is considered to be a related party primarily due to the combination of our investment in DNB and our Executive Chairman, who is also the Chief Executive Officer of DNB. Refer to Note 4 — Investments in Unconsolidated Affiliates for additional details.
In June 2021, we entered into a five-year agreement with DNB to provide them with certain products and data over the term of the agreement, as well as professional services, for an aggregate fee of approximately $34 million over the term of the agreement. During the same period, we also entered into an agreement with DNB for access to certain of their data assets for an aggregate fee of approximately $24 million over the term of the agreement. In addition, we will jointly market certain solutions and data.
The following is a summary of amounts related to agreements with DNB included in our Condensed Consolidated Balance Sheets (Unaudited) (in millions):
| | | | | | |
| | June 30, 2022 |
| December 31, 2021 | ||
Receivables from related parties | | $ | 6.1 | | $ | 0.2 |
Prepaid expenses and other current assets | |
| — | |
| 2.3 |
Deferred revenues (current) | | | 6.9 | | | 6.2 |
Deferred revenues (non-current) | |
| 2.7 | |
| 1.4 |
11
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
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 |
| | | | | | |
|
| Three months ended | | Six months ended | ||
| | June 30, 2022 |
| June 30, 2022 | ||
Revenues | | $ | 3.0 | | $ | 4.0 |
Operating expenses | |
| 1.2 | |
| 2.3 |
The agreements with DNB had no effect on our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three and six months ending June 30, 2021.
Trasimene
Prior to June 16, 2021, Trasimene Capital Management, LLC ("Trasimene") was considered a related party because the former Chairman of our Board of Directors owns a controlling interest in Trasimene. As of June 16, 2021, our former Chairman retired from our Board of Directors and became our Chairman Emeritus, 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 paid to Trasimene related to our acquisitions, which are included in Transition and integration costs in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).
(7)Long-Term Debt
Long-term debt consists of the Term B Loan repricing was $1.1 million.following (in millions):
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Term A Loan | | $ | 1,135.6 | | $ | 1,150.0 |
Revolving Credit Facility | |
| 646.7 | |
| 256.0 |
Senior Notes | |
| 1,000.0 | |
| 1,000.0 |
Other | |
| 5.8 | |
| 8.9 |
Total long-term debt principal | |
| 2,788.1 | |
| 2,414.9 |
Less: current portion of long-term debt | |
| (33.6) | |
| (32.5) |
Long-term debt before debt issuance costs and discount | |
| 2,754.5 | |
| 2,382.4 |
Less: debt issuance costs and discount | |
| (17.8) | |
| (19.8) |
Long-term debt, net of current portion | | $ | 2,736.7 | | $ | 2,362.6 |
As of June 30, 2022, principal maturities, including payments related to our finance leases, are as follows (in millions):
| | | |
2022 |
| $ | 15.2 |
2023 | | | 33.7 |
2024 | |
| 57.5 |
2025 | |
| 57.5 |
2026 | |
| 1,624.2 |
Thereafter | |
| 1,000.0 |
Total | | $ | 2,788.1 |
12
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
2021 Credit Agreement
On April 26, 2017, BKISMarch 10, 2021, our indirect subsidiary Black Knight Infoserv, LLC (“BKIS”) entered into a Second Amendment tosecond amended and restated credit and guaranty agreement (the “2021 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. thereto.
The 2021 Credit Agreement Second Amendment increasesprovides for (i) the aggregate principal amount ofa $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. The Credit Agreement Second Amendment also reduces the pricing applicable to the loans under the Termprevious term A Loanfacility and Revolving Credit Facility by 25 basis points and reduces the unused commitment fee applicable to the Revolving Credit Facility by 5 basis points. The Term A Loan and Revolving Credit Facility bear interest at rates based upon, at the option of BKIS, either (i) the base rate plusrevolving credit facility. As a margin of between 25 and 100 basis points depending on the total leverage ratio of BKFS LLC and its restricted subsidiaries on a consolidated basis (the “Consolidated Leverage Ratio”) and (ii) the Eurodollar rate plus a margin of between 125 and 200 basis points depending on the Consolidated Leverage Ratio, subject to a Eurodollar rate floor of zero basis points. In addition, BKIS will pay an unused commitment fee of between 15 and 30 basis points on the undrawn commitments under the Revolving Credit Facility, also depending on the Consolidated Leverage Ratio. Pursuant to the termsresult of the Credit Agreement Second Amendment,refinancing, we recognized $2.5 million of expense during the Term A Loan and the Revolving Credit Facility mature on February 25, 2022. The amount includedsix months ended June 30, 2021 in Other expense, net on the Condensed Consolidated StatementsStatement of Earnings and Comprehensive Earnings (Unaudited) related to.
As of June 30, 2022, the Term A Loaninterest rate for the Facilities was based on the Eurodollar rate plus a margin of 150 basis points and was approximately 3.1%. As of June 30, 2022, we had $353.3 million unused capacity on the Revolving Credit Facility, refinancingand the unused commitment fee was $3.3 million.
The Facilities are guaranteed by BKIS’s wholly-owned domestic restricted subsidiaries, as defined by the 2021 Credit Agreement, and Black Knight Financial Services, LLC, 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.
Senior Notes
On August 26, 2020, BKIS had 5.75% Senior Notes, interest paid semi-annually, which were scheduled to mature on April 15, 2023completed the issuance and sale of $1.0 billion aggregate principal amount of 3.625% senior unsecured notes due 2028 (the "Senior Notes"). The Senior Notes were senior unsecuredhave a coupon rate of 3.625% and mature on September 1, 2028. Interest is paid semi-annually in arrears on September 1 and March 1 of each year and commenced on March 1, 2021. The obligations registered under the Securities Act and contained customary affirmative, negative and financial covenants, and events of default for indebtedness of this type (with grace periods, as applicable, and lender remedies). On April 26, 2017, we redeemed the outstanding Senior Notes at a priceare fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by the same guarantors that guarantee the 2021 Credit Agreement (collectively, the “Guarantors”). The Senior Notes are effectively subordinated to any obligations that are secured, including obligations under the 2021 Credit Agreement, to the extent of 104.825% (the "Redemption")the value of the assets securing those obligations. The Senior Notes are structurally subordinated to all liabilities of BKIS’ subsidiaries that do not guarantee the Senior Notes.
Other Debt
Other debt includes financing agreements primarily related to certain data processing and paid $0.7maintenance services and finance lease agreements for certain computer equipment. For the six months ended June 30, 2021, non-cash investing and financing activity was $2.5 million in accrued interest. The amount included in Other expense, net on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) related to the Senior Notes redemptionunpaid portion of our finance lease agreements. There 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 Septemberas of June 30, 2017.2022. 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 | ||
April 30, 2018 through April 30, 2023 | | $ | 250.0 |
| 2.61 | % |
January 31, 2019 through January 31, 2023 | | $ | 300.0 |
| 2.65 | % |
13
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Under the terms of the January 2016 Swap Agreements, we receive payments based on the 1-month LIBOR rate (equal to 1.25%(approximately 1.67% as of SeptemberJune 30, 2017) and pay a weighted average fixed2022).
During the six months ended June 30, 2022, the following interest rate of 1.01%. The effective term for the January 2016 Swap Agreements is February 1, 2016 through January 31, 2019.
| | | | | | |
Effective dates |
| Notional amount |
| Fixed rate | ||
March 31, 2017 through March 31, 2022 | | $ | 200.0 |
| 2.08 | % |
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.
The estimated fair values of our noncontrolling interests prior to the Distribution. The increaseSwap Agreements are as follows (in millions):
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Other current assets | | $ | 1.0 | | $ | — |
| | | | | | |
Other current liabilities | | $ | — | | $ | 1.0 |
Other non-current liabilities | | $ | — | | $ | 13.9 |
A cumulative gain of $1.0 million ($0.7 million net of tax) and cumulative loss of $14.9 million ($11.1 million net of tax) is reflected in the effective tax rate for the nine months ended September 30, 2017 is primarily driven by the resolution of a legacy tax matter, partially offset by the effect of adopting ASU 2016-09 related to the income tax effects of awards that vested.
| | | | | | | | | | | | |
| | Three months ended June 30, | ||||||||||
| | 2022 | | 2021 | ||||||||
|
| | |
| 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 | | $ | 2.3 | | $ | 2.0 | | $ | (0.2) | | $ | 4.0 |
| | | | | | | | | | | | |
|
| Six months ended June 30, | ||||||||||
| | 2022 | | 2021 | ||||||||
| | | |
| Amount of loss |
| | |
| Amount of loss | ||
| | Amount of gain | | reclassified from | | Amount of gain | | reclassified from | ||||
| | recognized | | Accumulated OCE | | recognized | | Accumulated OCE | ||||
| | in OCE | | into Net earnings | | in OCE | | into Net earnings | ||||
Swap agreements | | $ | 6.6 | | $ | 5.2 | | $ | 0.3 | | $ | 7.9 |
As of June 30, 2022, the remaining balance in Accumulated other comprehensive loss is expected to be reclassified into Interest expense, net over the remaining term (less than 1 year).
14
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
(8)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. |
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, 2022 |
| December 31, 2021 | ||||||||||||||||||||
|
| 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) | | $ | 38.0 | | $ | 38.0 | | $ | — | | $ | — | | $ | 77.1 | | $ | 77.1 | | $ | — | | $ | — |
Interest rate swaps (Note 7) | | | 1.0 | | | — | | | 1.0 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest rate swaps (Note 7) | |
| — | |
| — | |
| — | |
| — | |
| 14.9 | |
| — | |
| 14.9 | |
| — |
Contingent consideration | |
| 4.0 | |
| — | |
| — | |
| 4.0 | |
| 4.9 | |
| — | |
| — | |
| 4.9 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interests | |
| 47.4 | |
| — | |
| — | |
| 47.4 | |
| 1,188.8 | |
| — | |
| — | |
| 1,188.8 |
The fair value of Redeemable noncontrolling interests and Contingent consideration was allocated to its members, including BKFS, 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 members for their allocable share of BKFS LLC's taxable income. Tax distributions are calculatedprimarily determined based on allocationssignificant estimates and assumptions, including Level 3 inputs. The estimates and assumptions include the projected timing and amount of incomefuture cash flows and discount rates reflecting the rate inherent in the future cash flows. Refer to Note 1 — Basis of Presentation and Overview for additional information.
15
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following table presents a membersummary of the change in fair value of our Level 3 fair value measurements (in millions):
| | | |
Beginning balance, December 31, 2021 |
| $ | 1,193.7 |
Contingent consideration adjustments related to prior year acquisition | | | (0.9) |
Acquisition of remaining outstanding Class A redeemable noncontrolling interests in Optimal Blue Holdco (Note 1) | | | (1,156.0) |
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco | | | 14.6 |
Ending balance, June 30, 2022 | | $ | 51.4 |
(9)Income Taxes
Our effective tax rate for a particular taxable year without taking into account any losses allocatedthe three months ended June 30, 2022 and 2021 was 22.3% and 22.0%, respectively. Our effective tax rates for the three months ended June 30, 2022 and 2021 differ from our statutory rate due to the member in a prior taxable year. This practice is consistent with IRS regulations. Subject to certain reductions,effect of research and experimentation tax distributions are generally made based on an assumedcredits. Our effective tax rate equal tofor the highest combined marginal federal, state and local income tax rate applicable to a U.S. corporation. BKFS LLC made tax distributions of $75.3 million and $48.5 million during the ninethree months ended SeptemberJune 30, 2017 and 2016, respectively. The 20172021 also includes the effect of tax distributions were for the 2016 tax year and 2017 tax yearbenefits relating to the period beforevesting of restricted shares of common stock.
Our effective tax rate for the Distribution.
(10)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.
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 trial court granted the motion on April 6,
16
BLACK KNIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -(UNAUDITED) – (Continued)
2020. The trial court’s order compelling arbitration was confirmed by the Florida First District Court of Appeal on January 6, 2021. On February 17, 2022, Black Knight filed an amended arbitration demand and PennyMac filed an answering statement on March 2, 2022.
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 American Arbitration Association ("AAA") for arbitration. The arbitrator was confirmed by the AAA on July 21, 2020. On February 17, 2022 PennyMac filed an amended arbitration demand and Black Knight filed an answering statement on March 2, 2022.
The arbitrator set Black Knight's trade secret case for a 10-day final hearing beginning on January 9, 2023 and set PennyMac's antitrust case for a 10-day final hearing beginning on January 23, 2023.
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.
ICE Transaction Complaint
On July 5, 2022, a complaint challenging the ICE Transaction was filed on behalf of a purported stockholder of Black Knight against Black Knight and the members of the Black Knight Board of Directors in the U.S. District Court for the Southern District of New York. The complaint is captioned Ryan O’Dell v. Black Knight, Inc., et al., Civil Action No. 22-cv-5715 (S.D.N.Y. 2022). The defendants have not yet been served. The complaint asserts federal securities claims under Sections 14(a) and 20(a) of the Exchange Act, alleging that certain disclosures regarding the ICE Transaction in the preliminary proxy statement/prospectus are materially false and misleading. The complaint seeks an injunction barring the ICE Transaction, rescissory damages in the event the ICE Transaction has been consummated, other unspecified damages and payment of the plaintiff’s costs and disbursements, including attorneys’ fees and expenses. We believe that the claims asserted in this complaint are meritless.
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
17
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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.
(11)Revenues
Disaggregation of Revenues
The following tables summarize revenues from contracts with clients (in millions):
| | | | | | | | | | | | | | | |
|
| Three months ended June 30, 2022 | |||||||||||||
|
| Servicing |
| Origination |
| Software |
| Data and |
| | | ||||
| | Software | | Software | | Solutions | | Analytics | | Total | |||||
Software solutions | | $ | 203.3 | | | 100.4 | | $ | 303.7 | | $ | 9.7 | | $ | 313.4 |
Professional services | |
| 18.4 | | | 13.2 | |
| 31.6 | |
| 2.1 | |
| 33.7 |
Data solutions | |
| — | | | 1.5 | |
| 1.5 | |
| 42.6 | |
| 44.1 |
Other | |
| — | | | 2.6 | |
| 2.6 | |
| 0.7 | |
| 3.3 |
Revenues | | $ | 221.7 | | $ | 117.7 | | $ | 339.4 | | $ | 55.1 | | $ | 394.5 |
| | | | | | | | | | | | | | | |
|
| Three months ended June 30, 2021 | |||||||||||||
|
| Servicing |
| Origination |
| Software |
| Data and |
| | | ||||
| | Software | | Software | | Solutions | | Analytics | | Total | |||||
Software solutions | | $ | 187.4 | | | 82.6 | | $ | 270.0 | | $ | 9.3 | | $ | 279.3 |
Professional services | |
| 20.4 | | | 12.4 | |
| 32.8 | |
| 0.1 | |
| 32.9 |
Data solutions | |
| — | | | 0.5 | |
| 0.5 | |
| 45.9 | |
| 46.4 |
Other | |
| — | | | 2.1 | |
| 2.1 | |
| 0.6 | |
| 2.7 |
Revenues | | $ | 207.8 | | $ | 97.6 | | $ | 305.4 | | $ | 55.9 | | $ | 361.3 |
| | | | | | | | | | | | | | | |
|
| Six months ended June 30, 2022 | |||||||||||||
| | Servicing |
| Origination |
| Software |
| Data and |
| | | ||||
| | Software | | Software | | Solutions | | Analytics | | Total | |||||
Software solutions | | $ | 407.3 | | $ | 192.9 | | $ | 600.2 | | $ | 19.2 | | $ | 619.4 |
Professional services | |
| 37.0 | | | 25.5 | |
| 62.5 | |
| 2.1 | |
| 64.6 |
Data solutions | |
| — | | | 2.0 | |
| 2.0 | |
| 89.0 | |
| 91.0 |
Other | |
| — | | | 5.4 | |
| 5.4 | |
| 1.3 | |
| 6.7 |
Revenues | | $ | 444.3 | | $ | 225.8 | | $ | 670.1 | | $ | 111.6 | | $ | 781.7 |
| | | | | | | | | | | | | | | |
|
| Six months ended June 30, 2021 | |||||||||||||
| | Servicing |
| Origination |
| Software |
| Data and |
| | | ||||
| | Software | | Software | | Solutions | | Analytics | | Total | |||||
Software solutions | | $ | 371.5 | | $ | 160.4 | | $ | 531.9 | | $ | 18.0 | | $ | 549.9 |
Professional services | |
| 39.0 | | | 24.2 | |
| 63.2 | |
| 0.3 | |
| 63.5 |
Data solutions | |
| — | | | 1.7 | |
| 1.7 | |
| 90.3 | |
| 92.0 |
Other | |
| — | | | 4.4 | |
| 4.4 | |
| 1.2 | |
| 5.6 |
Revenues | | $ | 410.5 | | $ | 190.7 | | $ | 601.2 | | $ | 109.8 | | $ | 711.0 |
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
18
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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 Obligations
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, 2022, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $2.6 billion and is expected to be recognized as follows: 14% by December 31, 2022, 58% by December 31, 2024, 82% by December 31, 2026 and the rest thereafter.
(12)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 value of $37.90 per share, which was based onapplicable securities laws and other restrictions. During the closing pricesix months ended June 30, 2021, we repurchased 0.6 million shares of our common stock onfor an aggregate of $46.7 million at an average price per share of $75.19. There were 0 share repurchases during the datethree months ended June 30, 2022 and 2021, and the six months ended June 30, 2022. As of grant. Of the 884,570June 30, 2022, we have 8.0 million shares remaining under our share repurchase authorization.
Omnibus Incentive Plan
A summary of 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 2022 is also based on certain operating performance criteria.
| | | | | | | | | |
| | Number of shares | | Grant date fair | | Vesting period | | | |
Dates |
| granted |
| value per share |
| (in years) |
| Vesting criteria | |
March 10, 2022(1) | | 809,166 | | $ | 57.18 | | 3.0 | | Service and Performance |
Various | | 88,571 | | $ | 57.99 - 70.91 | | 1.0 - 4.0 | | 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) | |
19
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Activity related to restricted stock and RSUs in 2022 is as follows:
| | | | | |
| | | | Weighted average | |
| | | | grant date | |
|
| Shares |
| fair value | |
Balance, December 31, 2021 | | 1,269,789 |
| $ | 70.79 |
Granted |
| 897,737 | | $ | 58.32 |
Forfeited |
| (24,149) | | $ | 70.27 |
Vested |
| (586,838) | | $ | 65.97 |
Balance, June 30, 2022 |
| 1,556,539 | | $ | 65.42 |
Equity-based compensation expense related to our restricted shares and RSUs was $4.1$10.8 million and $3.4$10.9 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $14.2$19.3 million and $9.5$18.1 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Equity-based compensation includes accelerated recognition of $2.9 million for the three and six months ended June 30, 2021. These expenses are included in Operating expenses in the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).
Profits Interests Units
The fair value of OB PIUs is measured using the Black-Scholes model. The OB PIUs vest over three years, with cliff vesting after the third year. If no public offering has been consummated as of the third anniversary of the acquisition of Optimal Blue, LLC, holders of the OB PIUs have an option to put their profits interests to us once per quarter for the twelve months that begins six months after the OB PIU holder’s vesting date, and once per year thereafter. In accordance with terms of the third amended and restated limited liability company agreement of Optimal Blue Holdco, a change in control of Black Knight Financial Services, Inc. 2015 Omnibus Incentive Plan (the "BKFS Omnibus Plan") was establisheddoes not accelerate vesting of the OB PIUs, but triggers certain redemption rights and gives each holder of OB PIUs the right to elect that Optimal Blue Holdco redeem all of the holder’s vested and unvested profits interests for a redemption price determined based on an appraisal process.
The units may be settled in 2015 and is now titled the “Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan” (the "Black Knight Omnibus Plan"). Thecash or Black Knight Financial Services, Inc. boardcommon stock or a combination of directors adoptedboth at our election and will be settled at the Black Knight Omnibus Plan ascurrent fair value at the time we receive notice of September 29, 2017,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 redeemable noncontrolling interests. The redemption value is equal to the difference in the per unit fair value of the underlying member units and the Black Knight Omnibus Planhurdle amount, based upon the proportionate required service period rendered to date.
Equity-based compensation expense related to the OB PIUs was assumed by Black Knight, Inc. on September 29, 2017.
(13)Segment Information
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 (losses) earnings of unconsolidated affiliates. We do not allocate Interest expense, net, Other expense,
20
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
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, 2022 | ||||||||||
| | Software | | Data and | | Corporate and | | | | |||
|
| Solutions |
| Analytics |
| Other |
| Total | ||||
Revenues | | $ | 339.4 |
| $ | 55.1 | | $ | — | | $ | 394.5 |
Expenses: | |
|
| |
|
| |
|
|
|
|
|
Operating expenses | |
| 148.7 | |
| 37.4 | |
| 30.7 | (1) |
| 216.8 |
Transition and integration costs | |
| — | |
| — | |
| 8.2 | (2) |
| 8.2 |
EBITDA | |
| 190.7 | |
| 17.7 | |
| (38.9) |
|
| 169.5 |
Depreciation and amortization | |
| 35.9 | |
| 4.0 | |
| 52.6 | (3) |
| 92.5 |
Operating income (loss) | |
| 154.8 | |
| 13.7 | |
| (91.5) |
|
| 77.0 |
Interest expense, net | |
|
| |
|
| |
|
|
|
| (22.6) |
Other expense, net | |
|
| |
|
| |
|
|
|
| (2.4) |
Earnings before income taxes and equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 52.0 |
Income tax expense | |
|
| |
|
| |
|
|
|
| 11.6 |
Earnings before equity in losses of unconsolidated affiliates | |
|
| |
|
| |
|
|
|
| 40.4 |
Equity in losses of unconsolidated affiliates, net of tax | |
|
| |
|
| |
|
|
|
| (0.1) |
Net earnings | |
|
| |
|
| |
|
|
| $ | 40.3 |
| | | | | | | | | | | | |
| | Three months ended June 30, 2021 | ||||||||||
| | Software |
| Data and | | Corporate and | | | | |||
|
| Solutions | | Analytics | | Other | | Total | ||||
Revenues | | $ | 305.4 | | $ | 55.9 | | $ | — | | $ | 361.3 |
Expenses: | |
|
| |
|
| |
|
|
|
|
|
Operating expenses | |
| 130.6 | |
| 35.1 | |
| 31.3 | (1) |
| 197.0 |
Transition and integration costs | |
| — | | | — | |
| 4.3 | (2) |
| 4.3 |
EBITDA | |
| 174.8 | |
| 20.8 | |
| (35.6) |
|
| 160.0 |
Depreciation and amortization | |
| 33.2 | |
| 3.7 | |
| 53.5 | (3) |
| 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 |
21
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
| | | | | | | | | | | | |
| | Six months ended June 30, 2022 | ||||||||||
| | Software |
| Data and | | Corporate and | | | | |||
|
| Solutions | | Analytics |
| Other |
| Total | ||||
Revenues | | $ | 670.1 |
| $ | 111.6 | | $ | — | | $ | 781.7 |
Expenses: | |
|
|
|
|
| |
|
|
|
|
|
Operating expenses | |
| 291.2 |
|
| 74.9 | |
| 58.6 | (1) |
| 424.7 |
Transition and integration costs | |
| — |
|
| — | |
| 15.8 | (2) |
| 15.8 |
EBITDA | |
| 378.9 | |
| 36.7 | |
| (74.4) |
|
| 341.2 |
Depreciation and amortization | |
| 71.0 |
|
| 7.8 | |
| 105.2 | (3) |
| 184.0 |
Operating income (loss) | |
| 307.9 | |
| 28.9 | |
| (179.6) |
|
| 157.2 |
Interest expense, net | |
|
|
|
|
| |
|
|
|
| (43.7) |
Other expense, net | |
|
|
|
|
| |
|
|
|
| (3.6) |
Earnings before income taxes and equity in earnings of unconsolidated affiliates | |
|
|
|
|
| |
|
|
|
| 109.9 |
Income tax expense | |
|
|
|
|
| |
|
|
|
| 10.5 |
Earnings before equity in earnings of unconsolidated affiliates | |
|
|
|
|
| |
|
|
|
| 99.4 |
Equity in earnings of unconsolidated affiliates, net of tax | |
|
|
|
|
| |
|
|
|
| 303.0 |
Net earnings | |
|
|
|
|
| |
|
|
|
| 402.4 |
Net losses attributable to redeemable noncontrolling interests | |
|
|
|
|
| |
|
|
|
| 2.5 |
Net earnings attributable to Black Knight | |
|
|
|
|
| |
|
|
| $ | 404.9 |
| | | | | | | | | | | | |
| | Six months ended June 30, 2021 | ||||||||||
| | Software | | Data and | | Corporate and |
| | | |||
|
| Solutions |
| Analytics |
| Other |
| Total | ||||
Revenues | | $ | 601.2 | | $ | 109.8 | | $ | — | | $ | 711.0 |
Expenses: | |
|
| |
|
| |
|
|
|
|
|
Operating expenses | |
| 255.5 | |
| 69.3 | |
| 58.4 | (1) |
| 383.2 |
Transition and integration costs | |
| — | |
| — | |
| 12.2 | (2) |
| 12.2 |
EBITDA | |
| 345.7 | |
| 40.5 | |
| (70.6) |
|
| 315.6 |
Depreciation and amortization | |
| 64.4 | |
| 7.5 | |
| 106.3 | (3) |
| 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 |
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) |
(2) | Transition and integration costs primarily consists of costs associated with acquisitions and costs related to the ICE Transaction. |
(3) | 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. |
22
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. (
● | the occurrence of any event, change, or other circumstance that could give rise to a right in favor of Intercontinental Exchange, Inc. (“ICE”) or us to terminate the definitive merger agreement governing the terms and conditions of the proposed transaction; |
● | the outcome of any legal proceedings that may be instituted against us or ICE; |
● | the possibility that the proposed transaction does not close when expected or at all because required regulatory, stockholder, or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect ICE or us or the expected benefits of the proposed transaction); |
● | the diversion of management’s attention and time from ongoing business operations and opportunities on merger-related matters; |
● | 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; |
● | changes in general economic, business, regulatory and political conditions; |
● | impacts to our business operations caused by the occurrence of a catastrophe or global crisis; |
● | the effects of our existing leverage on our ability to make acquisitions and invest in our business; |
● | risks associated with the recruitment and retention of our skilled workforce; |
● | risks associated with the availability of data; |
● | our ability to successfully consummate, integrate and achieve the intended benefits of acquisitions; |
● | risks associated with our investment in DNB; 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, 2021 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, 20162021 filed with the SEC on February 24, 2017.
Overview
Black Knight is a leadingpremier provider of integrated, innovative, mission-critical, high-performance software solutions, data and analytics solutions to the U.S. mortgage and consumer loan, real estate and capital market verticals.markets. Our mission is to transform the markets we serve by delivering innovative solutions facilitate and automate many of the mission-critical business processesthat are integrated across the homeownership lifecycle from origination until asset disposition. and that result in realized efficiencies, reduced risk and new opportunities for our clients to help them achieve greater levels of success.
We believe we differentiate ourselves by the breadth and depth ofbusinesses leverage our comprehensive,robust, integrated solutions andacross the insight we provideentire homeownership lifecycle to our clients. Black Knight was a majority-owned subsidiary of Fidelity National Financial, Inc. ("FNF") prior to the Distribution as described in the "Distribution of FNF's Ownership Interest and Related Transactions" section below.
We have a focused strategy of continuous innovation across our clients.business supported by strategic acquisitions – and even more importantly, the integration of those innovations and acquisitions into our broader ecosystem. Our scale allows us to continually and cost-effectively invest in
23
our business, in orderboth to meet evolvingever-changing industry requirements and to maintain our position as a leading provider of platforms for the mortgage and real estate markets.
Deep business and regulatory expertise and an industry-standard platform forunparalleled, holistic view of the markets we serve allow us the privilege of being a trusted advisor to our clients, who range from the nation’s largest lenders and mortgage market participants.
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, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 | | 2021 | ||||||
Active loans |
| 33.1 |
|
| 32.3 |
|
| 3.1 |
|
| 3.3 |
|
| 36.2 |
| | 35.6 | |
Market size |
| 53.2 | (1) | | 53.1 | (1) | | 12.5 | (2) | | 12.4 | (2) | | 65.7 |
| | 65.5 | |
Market share |
| 62 | % |
| 61 | % |
| 25 | % |
| 26 | % |
| 55 | % | | 54 | % |
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) |
(2) |
We have long-standing relationships with our clients – a majority of whom enter into long-term contracts that include multiple, integrated products embedded into mission-critical, client-side workflow and decision processes. This speaks to the confidence our clients, which include some of the largest financial institutions in the world, have in our solutions and our commitment to serve them. The contractual nature of our revenues and stickiness of our client relationships make our revenues both highly visible and recurring in nature. Our scale and integrated ecosystem of solutions drive significant operating leverage and cross-sell opportunities, enabling our clients to continually benefit from new and greater operational efficiencies while simultaneously allowing us to generate strong margins and cash flows.
Our Markets
The Black Knight ecosystem stretches across four core “pillar” verticals: mortgage loan servicing, mortgage origination, capital markets and real estate; with our data and analytics flowing throughout and between the interconnected ecosystem of solutions. As we integrate our innovations and acquired technologies, we are committed to continually improving the end consumer experience, driving further efficiencies for our clients and helping them to win new customers and retain existing customers.
Recent Developments
Optimal Blue Transaction
On February 15, 2022, we entered into a purchase agreement with Cannae and THL and acquired all of their Class A units of Optimal Blue Holdco, LLC (“Optimal Blue Holdco”) through Optimal Blue I, LLC (“Optimal Blue I”), a Delaware limited liability company and our wholly-owned subsidiary, in exchange for aggregate consideration of 36.4 million shares of DNB common stock valued at $722.5 million and $433.5 million in cash, funded with borrowings under our revolving credit facility. The aggregate consideration of $1.156 billion and number of shares of DNB common stock paid to Cannae and THL was based on the 20-day volume-weighted average trading price of DNB for the period ended on February 14, 2022. As of February 15, 2022, we own 100% of the Class A units of Optimal Blue Holdco. Refer to Note 1 — Basis of Presentation and Overview for additional information.
Merger Agreement
On May 4, 2022, we entered into a definitive agreement to be acquired by ICE, a leading global provider of data, technology, and market infrastructure, in a transaction valued at approximately $13.1 billion, or $85 per share, with consideration in the form of a mix of cash (80%) and stock (20%) (the “ICE Transaction”). The ICE Transaction is expected to close in the first half of 2023, subject to the receipt of regulatory
24
approvals, Black Knight shareholder approval and the satisfaction of customary closing conditions. The ICE Transaction has been approved by the Boards of Directors of Black Knight and ICE. Refer to Note 1 — Basis of Presentation and Overview for additional information.
Business Trends and Conditions
Market Trends
Market trends that have spurred lenders and servicers to seek software, data and analytics solutions are as follows:
Integral role of technology in the U.S. mortgage loan industry. Over the past few years, the homebuyer’s processes have become more digital, and banks and other lenders and servicers have become increasingly focused on automation and workflow management to operate more efficiently and meet their regulatory requirements as well as using technology to enhance the consumer experience during the mortgage loan origination, closing and servicing processes. We believe technology providers must be able to support the complexity and dynamic nature of the market, display extensive industry knowledge and possess the financial resources to make the necessary investments in technology and software to support lenders and servicers. This includes an enhanced digital experience along with the application of artificial intelligence, robotic process automation and adaptive learning.
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 solutions that enhance the decision-making process. These industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals. Mortgage loan market participants are eager for timely data and insights to help them plan and react to the changing environment.
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 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 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 in light of an increased level of cybersecurity incidents. We expect the industry focus on privacy and data security to continue to increase.
Lenders increasingly focused on core operations. As a result of regulatory scrutiny, a decline in refinance origination volumes due to a rising interest rate environment and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe lenders are increasingly shifting from in-house solutions to third-party solutions that provide a more comprehensive and efficient solution. Lenders require these providers to deliver best-in-class solutions and deep domain expertise and to assist them in maintaining regulatory compliance.
Our Business Segments
Our business is organized into two segments:
Software Solutions
Our Software Solutions segment offers software and hosting solutions that support loan servicing, loan origination and settlement services. The Software Solutions segment was formerly known asOur software solutions revenues were 86% of our consolidated revenues for both the Technology segment.
25
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 | | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Servicing software solutions | | $ | 221.7 | | $ | 207.8 |
| 65 | % | 68 | % | $ | 444.3 | | $ | 410.5 |
| 66 | % | 68 | % |
Origination software solutions | |
| 117.7 | |
| 97.6 |
| 35 | % | 32 | % |
| 225.8 | |
| 190.7 |
| 34 | % | 32 | % |
Software Solutions | | $ | 339.4 | | $ | 305.4 |
| 100 | % | 100 | % | $ | 670.1 | | $ | 601.2 |
| 100 | % | 100 | % |
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 servicing software solutions primarily generate revenues based on the number of active loans outstanding on our system, which has been very stable; however, we have some exposure to foreclosure and bankruptcy loan volumes, which can fluctuate based on economic cycles and other factors.
As a result of the 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 in the prior year period. We expect higher foreclosure-related transactional revenues in 2022 compared to 2021 as a result of the expiration of the federal foreclosure moratorium. According to corresponding Black Knight Mortgage Monitor reports, foreclosure starts were 64,000 for the three months ended June 30, 2022 compared to 11,900 for the 2021 period.
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 are 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 refinance volumes, due to the nature of the services provided. While we saw elevated refinance origination volumes for a prolonged period of time, we have seen lower origination volumes in 2022 due to record volumes in prior years and a rising interest rate environment. According to the July 2022 Mortgage Bankers Association Mortgage Finance Forecast, mortgage loan originations have declined 37% for the three months ended June 30, 2022 compared to the 2021 period. Our origination software solutions that are more sensitive to origination volumes were approximately 3% of our consolidated revenues for the three months ended June 30, 2022, and revenues related to these origination software solutions declined approximately 32% for the three months ended June 30, 2022 compared to the 2021 period, representing a headwind of approximately $5.6 million.
Data and Analytics-
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, prepayment and defaultbehavioral models, lead generationa multiple listing service software solution and other data solutions.
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.
26
purposes of making decisions about allocating resources to the segments and assessing their performance. For these reasons, these measures are excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission'sSEC’s Regulation G and Item 10(e) of Regulation S-K.
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.
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 | % |
| | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Revenues | | $ | 394.5 | | $ | 361.3 | | $ | 781.7 | | $ | 711.0 | |
Expenses: | |
|
| |
|
| |
|
| |
|
| |
Operating expenses | |
| 216.8 | |
| 197.0 | |
| 424.7 | |
| 383.2 | |
Depreciation and amortization | |
| 92.5 | |
| 90.4 | |
| 184.0 | |
| 178.2 | |
Transition and integration costs | |
| 8.2 | |
| 4.3 | |
| 15.8 | |
| 12.2 | |
Total expenses | |
| 317.5 | |
| 291.7 | |
| 624.5 | |
| 573.6 | |
Operating income | |
| 77.0 | |
| 69.6 | |
| 157.2 | |
| 137.4 | |
Operating margin | |
| 19.5 | % |
| 19.3 | % |
| 20.1 | % |
| 19.3 | % |
Interest expense, net | |
| (22.6) | |
| (20.9) | |
| (43.7) | |
| (41.2) | |
Other expense, net | |
| (2.4) | |
| (1.0) | |
| (3.6) | |
| (4.2) | |
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates | |
| 52.0 | |
| 47.7 | |
| 109.9 | |
| 92.0 | |
Income tax expense | |
| 11.6 | |
| 10.5 | |
| 10.5 | |
| 15.7 | |
Earnings before equity in (losses) earnings of unconsolidated affiliates | |
| 40.4 | |
| 37.2 | |
| 99.4 | |
| 76.3 | |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | |
| (0.1) | |
| (5.0) | |
| 303.0 | |
| 1.4 | |
Net earnings | |
| 40.3 | |
| 32.2 | |
| 402.4 | |
| 77.7 | |
Net losses attributable to redeemable noncontrolling interests | |
| — | |
| 7.5 | |
| 2.5 | |
| 16.1 | |
Net earnings attributable to Black Knight | | $ | 40.3 | | $ | 39.7 | | $ | 404.9 | | $ | 93.8 | |
| | | | | | | | | | | | | |
Net earnings per share attributable to Black Knight common shareholders: | |
|
| |
|
| |
|
| |
|
| |
Diluted | | $ | 0.26 | | $ | 0.25 | | $ | 2.60 | | $ | 0.60 | |
Weighted average shares of common stock outstanding: | |
|
| |
|
| |
|
| |
|
| |
Diluted | |
| 155.6 | |
| 155.7 | |
| 155.5 | |
| 155.8 | |
Segment Financial Results
Revenues
The following table sets forth revenues by segment for the periods presented (in millions):
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 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | Six months ended | | | | | |
| ||||||||
| | June 30, | | Variance | | June 30, | | Variance |
| ||||||||||||||
|
| 2022 |
| 2021 |
| $ | | % |
| 2022 |
| 2021 |
| | $ | | % | | |||||
Software Solutions | | $ | 339.4 | | $ | 305.4 | | $ | 34.0 | | 11 | % | $ | 670.1 | | $ | 601.2 | | $ | 68.9 | | 11 | % |
Data and Analytics | |
| 55.1 | |
| 55.9 | |
| (0.8) | | (1) | % |
| 111.6 | |
| 109.8 | |
| 1.8 | | 2 | % |
Total | | $ | 394.5 | | $ | 361.3 | | $ | 33.2 | | 9 | % | $ | 781.7 | | $ | 711.0 | | $ | 70.7 | | 10 | % |
Software Solutions
Revenues were $224.5$339.4 million in the three months ended SeptemberJune 30, 20172022 compared to $221.0$305.4 million in the 20162021 period, an increase of $3.5$34.0 million, or 2%11%. Our servicing software business grew 6%solutions revenues increased 7%, or $11.1$13.9 million, primarily driven by an increase of $5.5 million in foreclosure-related revenues due to the expiration of the foreclosure moratorium, revenues from new clients and sales of new innovative solutions. Our origination software solutions revenues increased 21%, or $20.1 million, primarily driven by higher loanrevenues from new clients, revenues of $6.4 million related to acquired businesses, partially offset by the effect of lower refinance volumes on our core servicing software solution, which increased 3.1% to 33.4 million average loans,Exchange and price increases, partially offset by lower specialty servicing volumes. Our origination software business declined 17%, or $7.6 million,eLending platforms primarily driven by lower Exchange volumes as a result of the 43% decline in refinancing originations as reported by the Mortgage Bankers Association ("MBA").
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Revenues were $670.1 million in the six months ended June 30, 2022 compared to $601.2 million in the 2021 period, an increase of $68.9 million, or 11%. Our servicing software solutions increased 8%, or $33.8 million, primarily driven by an increase of $13.6 million in foreclosure-related revenues due to the expiration of the foreclosure moratorium, revenues from new clients and client contract termination fees,sales of new innovative solutions. Our origination software solutions revenues increased 18%, or $35.1 million, primarily driven by higher revenues from new clients, revenues of $13.2 million related to acquired businesses, partially offset by the eLynx acquisition.
Data and Analytics
Revenues were $40.3$55.1 million in the three months ended SeptemberJune 30, 20172022 compared to $47.6$55.9 million in the 20162021 period, a decrease of $7.3$0.8 million, or 15%1%. The decrease was primarily driven by the effect of the Property Insight realignment,lower origination volumes, lower revenues related to a reduction in scope for two strategic data deal renewals and client attrition, partially offset by
Revenues were $122.1$111.6 million in the ninesix months ended SeptemberJune 30, 20172022 compared to $133.7$109.8 million in the 20162021 period, a decreasean increase of $11.6$1.8 million, or 9%2%. The decreaseincrease was primarily driven by revenues from strong sales execution and new innovation solutions, partially offset by the effect of the Property Insight realignment, partially offsetlower origination volumes and lower revenues related to a reduction in scope for two strategic data deal renewals.
EBITDA and EBITDA margin
The following tables set forth EBITDA (in millions) and EBITDA margin by incremental revenues from the Motivity acquisition and growth in our property data and multiple listing service businesses. Had the realignment taken place on January 1, 2016, Black Knight revenuessegment for the nine months ended September 30, 2016 would have been lower by $23.3 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | Six months ended | | | | | |
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| | June 30, | | Variance | | June 30, | | Variance |
| ||||||||||||||
|
| 2022 |
| 2021 |
| $ | | % | | 2022 |
| 2021 |
| $ | | % | | ||||||
Software Solutions | | $ | 190.7 | | $ | 174.8 | | $ | 15.9 | | 9 | % | $ | 378.9 | | $ | 345.7 | | $ | 33.2 | | 10 | % |
Data and Analytics | |
| 17.7 | |
| 20.8 | |
| (3.1) | | (15) | % |
| 36.7 | |
| 40.5 | |
| (3.8) | | (9) | % |
| | | | | | | | | | | | |
| | Three months ended | | | Six months ended | | | |||||
| | June 30, | | Variance | | June 30, | | Variance | ||||
|
| 2022 |
| 2021 |
| Basis points |
| 2022 |
| 2021 |
| Basis points |
Software Solutions |
| 56.2 | % | 57.2 | % | (100) |
| 56.5 | % | 57.5 | % | (100) |
Data and Analytics |
| 32.1 | % | 37.2 | % | (510) |
| 32.9 | % | 36.9 | % | (400) |
Software Solutions
EBITDA was $190.7 million in the three months ended SeptemberJune 30, 20172022 compared to $152.2$174.8 million in the 20162021 period, an increase of $15.9 million, or 9%, with an EBITDA margin of 56.2% compared to 57.2% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and increased investments in innovation and client support as well as higher sales and marketing costs as we return to a more normal operating environment following the pandemic.
EBITDA was $378.9 million in the six months ended June 30, 2022 compared to $345.7 million in the 2021 period, an increase of $33.2 million, or 10%, with an EBITDA margin of 56.5% compared to 57.5% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and increased investments in innovation and client support as well as higher sales and marketing costs as we return to a more normal operating environment following the pandemic.
Data and Analytics
EBITDA was $17.7 million in the three months ended June 30, 2022 compared to $20.8 million in the 2021 period, a decrease of $11.5$3.1 million, or 8%. Consolidated Operating expenses were $428.215%, with an EBITDA margin of 32.1% compared to 37.2% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and higher sales and marketing and personnel costs.
EBITDA was $36.7 million in the ninesix months ended SeptemberJune 30, 20172022 compared to $433.4$40.5 million in the 20162021 period, a decrease of $5.2$3.8 million, or 1%.9%, with an EBITDA margin of 32.9% compared to 36.9% in the 2021 period. The changes in operating expenses are discussed further at the segment level below.EBITDA margin decrease was primarily driven by revenue mix and higher sales and marketing and personnel costs.
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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 |
| ||||||||||||||
|
| 2022 |
| 2021 |
| $ | | % | | 2022 |
| 2021 |
| $ | | % |
| ||||||
Software Solutions | | $ | 148.7 | | $ | 130.6 | | $ | 18.1 | | 14 | % | $ | 291.2 | | $ | 255.5 | | $ | 35.7 | | 14 | % |
Data and Analytics | |
| 37.4 | |
| 35.1 | |
| 2.3 | | 7 | % |
| 74.9 | |
| 69.3 | |
| 5.6 | | 8 | % |
Corporate and Other(1) | |
| 30.7 | |
| 31.3 | |
| (0.6) | | (2) | % |
| 58.6 | |
| 58.4 | |
| 0.2 | | 0 | % |
Total | | $ | 216.8 | | $ | 197.0 | | $ | 19.8 | | 10 | % | $ | 424.7 | | $ | 383.2 | | $ | 41.5 | | 11 | % |
(1) | Operating expenses for Corporate and Other include equity-based compensation, including certain related payroll taxes, of $13.0 million and $13.2 million for the three months ended June 30, 2022 and 2021, respectively, and $24.2 million and $23.7 million for the six months ended June 30, 2022 and 2021, 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, 20172022 compared to $95.9 million in the 20162021 period a decrease of $2.9 million, or 3%. The decrease was primarily due to lower net personnel costs.
The increase in Operating expenses in the six months ended June 30, 2022 compared to the 2021 period was primarily driven by higher net personnel expenses, including the effect of wage inflation above our typical annual increases, increases in sales and marketing costs, partially offset by lower lease costs.
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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|
| 2022 |
| 2021 |
| $ | | % | | 2022 |
| 2021 |
| $ | | % |
| ||||||
Software Solutions | | $ | 35.9 | | $ | 33.2 | | $ | 2.7 | | 8 | % | $ | 71.0 | | $ | 64.4 | | $ | 6.6 | | 10 | % |
Data and Analytics | |
| 4.0 | |
| 3.7 | |
| 0.3 | | 8 | % |
| 7.8 | |
| 7.5 | |
| 0.3 | | 4 | % |
Corporate and Other(1) | |
| 52.6 | |
| 53.5 | |
| (0.9) | | (2) | % |
| 105.2 | |
| 106.3 | |
| (1.1) | | (1) | % |
Total | | $ | 92.5 | | $ | 90.4 | | $ | 2.1 | | 2 | % | $ | 184.0 | | $ | 178.2 | | $ | 5.8 | | 3 | % |
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 and six months ended June 30, 2022 compared to the respective 2021 periods is primarily related to the amortization of software and deferred contract costs, partially offset by lower amortization of other intangible assets.
Transition and Integration Costs
Transition and integration costs were $8.2 million in the three months ended SeptemberJune 30, 20172022 compared to $29.0$4.3 million in the 2016 period, a decrease of $4.7 million. The decrease is primarily due to lower deferred contract2021 period. Transition and integration costs amortization. The 2016 period includes accelerated amortization of $2.9 million related to certain deferred implementation costs.
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Interest Expense, Net
Interest expense, net was $3.7$22.6 million in the three months ended SeptemberJune 30, 20172022 compared to $2.1$20.9 million in the 20162021 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,
Other expense, net was $14.1$2.4 million in the three months ended SeptemberJune 30, 20172022 compared to $16.9$1.0 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 $11.6 million in the three months ended SeptemberJune 30, 20172022 compared to $1.4$10.5 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 $10.5 million in the 2016six months ended June 30, 2022 compared to $15.7 million in the 2021 period. Our effective tax rate was 18.5%9.6% in the nine2022 period compared to 17.1% in the 2021 period. Our effective tax rate for the six 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 federal and state statutory rate because of2022 includes the effect of our noncontrolling interests priora $14.1 million discrete income tax benefit related to the Distribution. Asestablishment of a result of the Distribution, we no longer have any noncontrolling interests.
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 | % |
Equity in (Losses) Earnings of Unconsolidated Affiliates, Net of Tax
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, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Equity in losses of unconsolidated affiliates, net of tax | | $ | (0.1) | | $ | (5.0) | | $ | (2.4) | | $ | (8.5) |
Non-cash gain related to DNB's issuance of common stock, net of tax | |
| — | |
| — | |
| — | |
| 9.9 |
Gain related to DNB investment, net of tax | | | — | | | — | | | 305.4 | | | — |
Equity in (losses) earnings of unconsolidated affiliates, net of tax | | $ | (0.1) | | $ | (5.0) | | $ | 303.0 | | $ | 1.4 |
Refer to Note 4 — Investments in Unconsolidated Affiliates in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by costs associated with Motivity and the data hub.
Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash balances, cash flows from operations and borrowings on our Revolving Credit Facility.revolving credit facility. As of June 30, 2022, we had cash of $38.0 million, debt principal of $2,788.1 million and available capacity of $353.3 million on our revolving credit facility.
As of June 30, 2022, we own 18.5 million shares of DNB common stock for an ownership interest in DNB of approximately 4.3% of DNB’s outstanding common stock. As of June 30, 2022, DNB’s closing share price was $15.03 and the fair value of our investment in DNB was $277.7 million before tax. Assuming a statutory tax rate of 25.3%, the estimated after-tax value of our investment in DNB is $249.4 million. Refer to Note 4 — Investments in Unconsolidated Affiliates in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information.
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Our primary cash requirements include operating expenses, debt service payments (principal and interest), capital expenditures (including property,software development, equipment and computer softwareproperty related 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, the sale of DNB common stock, 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.
As of June 30, 2022, our income tax payable was $46.8 million compared to $11.8 million as of December 31, 2021. The increase is primarily related to the income taxes owed as a result of the shares of DNB common stock that we exchanged as part of the aggregate consideration for acquiring the remaining outstanding Class A Units in Optimal Blue Holdco from Cannae and THL. Refer to Note 1 — Basis of Presentation and Overview for additional information. Additionally, the Tax Cuts and Jobs Act of 2017 we madeamended Internal Revenue Code Section 174 (“Section 174”) to eliminate current-year deductibility of research and experimentation expenditures and software development costs beginning in 2022, and now requires these costs to be capitalized and amortized over a period of time. The effect of the change in timing of deducting certain costs under Section 174 resulted in higher income tax payments in 2022.
The CARES Act allows us to defer payments of $150.0our share of social security taxes until December 31, 2022. As of June 30, 2022, we have deferred $7.6 million on our Revolving Credit Facility, which increased our available capacityof payments related to $500.0 million.
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, | | | | ||||
|
| 2022 |
| 2021 |
| Variance | |||
Cash flows provided by operating activities | | $ | 89.8 | | $ | 199.2 | | $ | (109.4) |
Cash flows used in investing activities | |
| (59.5) | |
| (116.4) | |
| 56.9 |
Cash flows used in financing activities | |
| (69.4) | |
| (28.8) | |
| (40.6) |
Net (decrease) increase in cash and cash equivalents | | $ | (39.1) | | $ | 54.0 | | $ | (93.1) |
Operating Activities
The $109.4 million and $210.5 million for the nine months ended September 30, 2017 and 2016, respectively. The increasedecrease in cash provided by operating activities in the ninesix months ended SeptemberJune 30, 20172022 compared to the 20162021 period is primarily related to increased earningsan increase in income tax payments of $81.6 million primarily related to the gain on our investment in DNB and the increaseeffect of the change in non-cash expenses from the loss on extinguishmenttiming of debtdeducting certain costs under Section 174, higher incentive compensation payments and equity-based compensation.
Investing Activities
The $56.9 million and $206.1 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease in cash used in investing activities in the ninesix months ended SeptemberJune 30, 2017 as2022 compared to the 20162021 period is primarily related to business and asset acquisitions in the prior year period.
Financing Activities
The $40.6 million increase in cash used in financing activities in the six months ended June 30, 2022 compared to the 2021 period is primarily related to the eLynxcash paid as part of the aggregate purchase consideration for acquiring the remaining outstanding Class A Units of Optimal Blue Holdco from Cannae and Motivity acquisitions in 2016 and lower capital expenditures in 2017.
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Financing
For a description of our financing arrangements, see Note 47 —
Contractual Obligations
Our long-term contractual obligations generally include our debt and related interest payments, data processingsoftware subscription, cloud computing and hardware and software 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. Refer to Note 12 — Equity in Item 1 of $39.18 per share. AsPart I of September 30, 2017, we had approximately 8.8 million shares remaining under our share repurchase authorization.
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.
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 7 — 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 $990.4 million as of June 30, 2022. The fair value of our Senior Notes was approximately $870.0 million as of June 30, 2022. 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, 2022, we had $1,558.1$1,782.3 million in
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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, 2022, 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 in2022, 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 or decrease of 100 basis points in the applicable interest rate would cause an increase or decrease in interest expense of $15.6$17.8 million on an annual basis ($7.6 million including the effect of our current interest rate swaps). A decrease of 100 basis points in the applicable rate would cause a decrease in interest expense of $13.6 million on an annual basis ($5.614.0 million including the effect of our current interest rate swaps) as the 1-week and 1-month LIBOR rate was 1.25%were approximately 1.59% and 1.67%, respectively, as of SeptemberJune 30, 2017.
As of June 30, 2022, 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 | ||
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.
During six months ended June 30, 2022, the following interest rate of 1.01%. The effective term for the January 2016 Swap Agreements is February 1, 2016 through January 31, 2019.
| | | | | | |
Effective dates |
| Notional amount |
| Fixed rate | ||
March 31, 2017 through March 31, 2022 | | $ | 200.0 |
| 2.08 | % |
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, 2017,2022, 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, 2017,2022, 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 610 —
In addition to the significant risks and uncertainties describedlisted under Item 1A- “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, we identified the following additional risks during the six months ended June 30, 2022. There have been no other material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2021.
Risks Related to the Proposed Merger with Intercontinental Exchange, Inc. (“ICE”)
Because the market price of ICE common stock may fluctuate, holders of our common stock cannot be certain of the market value of the consideration they will receive in the Merger.
Pursuant to and subject to the terms of the Agreement and Plan of Merger dated as of May 4, 2022 (the “Merger Agreement”) with ICE, a wholly-owned subsidiary of ICE (“Sub”) will merge with and into Black Knight with Black Knight surviving as a wholly-owned subsidiary of ICE (the “Merger”). At the effective time of the Merger (the “Effective Time”), each share of our common stock issued and outstanding immediately prior to the Effective Time (other than shares of our common stock held by us as treasury stock, any of our subsidiaries (other than with respect to the Black Knight Employee Stock Purchase Plan), by ICE or any of ICE’s subsidiaries (including Sub), or by any holder who has properly exercised and perfected such holder’s demand for appraisal rights under Section 262 of the General Corporation Law of the State of Delaware and not effectively withdrawn or lost such holder’s rights to appraisal (collectively, “Excluded Shares”)) will be converted into the right to receive, at the election of the holder thereof, the following consideration (the “Merger Consideration”):
● | (i) an amount in cash equal to the sum, rounded to the nearest one tenth of a cent, of (x) $68.00 plus (y) the product, rounded to the nearest one tenth of a cent, of 0.1440 (the “Share Ratio”) multiplied by the average of the volume weighted averages of the trading prices of ICE common stock on the New York Stock Exchange on each of the ten consecutive trading days ending on (and including) the trading day that is three trading days prior to the date on which the Effective Time occurs (the “Average ICE Stock Price”) (such amount, the “Per Share Cash Consideration”); |
● | (ii) a number of validly issued, fully paid and nonassessable shares of ICE common stock as is equal to the quotient, rounded to the nearest one ten thousandth, of (x) the Per Share Cash Consideration divided by (y) the Average ICE Stock Price (such number of shares, the “Per Share Stock Consideration”); or |
● | (iii) if no election is made by such holder, such Per Share Stock Consideration or Per Share Cash Consideration as is determined in accordance with the proration mechanism described below. |
The election right for the holders of shares of our common stock will be subject to proration in accordance with the terms of the Merger Agreement such that (a) the total number of shares of our common stock to be converted into the right to receive the Per Share Cash Consideration will be equal to the quotient, rounded down to the nearest whole share, of $10,505,000,000 divided by the Per Share Cash Consideration and (b) all shares of our common stock not receiving the Per Share Cash Consideration (other than Excluded Shares) will be converted into the right to receive the Per Share Stock Consideration.
This Share Ratio is fixed and will not be adjusted for changes in the market price of either ICE common stock or our common stock. Changes in the price of ICE common stock prior to the Merger will affect the value that holders of our common stock will receive in the Merger. We and ICE are not permitted to terminate the Merger Agreement as a result, in and of itself, of any increase or decrease in the market price of ICE common stock or our common stock.
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There will be a time lapse between the date on which our stockholders vote to approve the Merger Agreement at the special meeting and the date on which our stockholders entitled to receive the Merger Consideration actually receive such consideration. The market value of ICE common stock may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, regulatory considerations, including changes in U.S. monetary policy and its effect on global financial markets and on interest rates, changes in ICE’s or our business, operations and prospects, the global coronavirus pandemic and the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on ICE, us or the customers or other constituencies of ICE or us, many of which factors are beyond ICE’s or our control. Therefore, at the time our stockholders must decide whether to approve the Merger Agreement at the special meeting, they will not know the market value of the consideration to be received by holders of our common stock at the Effective Time of the Merger.
The Merger will not be completed unless important conditions are satisfied or waived, including approval of the Merger Agreement by our stockholders.
Specified conditions set forth in the Merger Agreement must be satisfied or waived to complete the Merger. If the conditions are not satisfied or, to the extent permitted by law, waived, the Merger will not occur or will be delayed, and we and ICE may lose some or all of the intended benefits of the Merger. The following conditions must be satisfied or, to the extent permitted by law, waived before we and ICE are obligated to complete the Merger: (i) the adoption of the Merger Agreement by the affirmative vote of holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting, (ii) the expiration or early termination of the waiting period applicable to the consummation of the Merger under the HSR Act, (iii) the absence of any Restraint that is in effect and restrains, enjoins or otherwise prohibits the consummation of the Merger, (iv) the effectiveness of the registration statement on Form S-4 filed by ICE to register the shares of ICE common stock to be issued in the Merger, (v) approval for listing on the NYSE of the shares of ICE common stock to be issued in the Merger, (vi) compliance by ICE and us in all material respects with their respective obligations under the Merger Agreement that are required to be performed or complied with by the time of the closing and (vii) subject in most cases to exceptions that do not rise to the level of a Material Adverse Effect or a Parent Material Adverse Effect (each as defined in the Merger Agreement), the accuracy of representations and warranties made by us, respectively, in the Merger Agreement. The respective obligations of ICE and us to consummate the Merger are also subject to there not having occurred since the date of the Merger Agreement an event that has had or would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect or a Material Adverse Effect, respectively.
If the Merger is not completed, each of ICE’s and our ongoing businesses, financial condition, financial results and stock price may be materially and adversely affected and, without realizing any of the benefits of having completed the Merger, ICE and we will be subject to a number of risks, including the following:
● | the market price of our common stock or ICE common stock could decline to the extent the current market price reflects an assumption that the Merger will be completed; |
● | ICE or we could owe a termination fee to the other party under certain circumstances; |
● | if our Board of Directors seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that ICE has agreed to in the Merger Agreement; |
● | time and financial and other resources committed by ours and ICE’s management to matters relating to the Merger could otherwise have been devoted to pursing other beneficial opportunities; |
● | ICE or we may experience negative reactions from the financial markets or from their customers, suppliers or employees; |
● | ICE or our current and prospective employees may experience uncertainty about their roles following the completion of the Merger, which may have an adverse effect on ICE’s or our ability to attract or retain key management and other key personnel; |
● | ICE and we will be required to pay costs relating to the Merger, such as legal, accounting, financial advisory, financing (including the redemption by ICE of $5 billion of its bonds at 101% of par value) and printing fees, whether or not the Merger is completed; and |
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● | ICE or we could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against ICE or us to perform our respective obligations under the Merger Agreement. |
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, that could have an adverse effect on ICE following the Merger or that are otherwise unacceptable to ICE.
Completion of the Merger is conditioned on, among other things, the expiration or early termination of the waiting period applicable to the consummation of the Merger under the HSR Act. There can be no assurance that this condition to the completion of the Merger will be satisfied on a timely basis or at all and there can be no assurance that, if regulatory approvals are granted, they will not result in the imposition of conditions, limitations, obligations or restrictions that have the effect of preventing the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of ICE following the Merger or otherwise reducing the anticipated benefits of the Merger, or result in the delay or abandonment of the Merger.
Under the Merger Agreement, ICE and we have agreed to use our respective reasonable best efforts to cause the transactions contemplated by the Merger Agreement to be consummated as soon as practicable and to obtain all approvals from any governmental entity or third party that are necessary, proper or advisable to consummate the Merger. In particular, each party has agreed to use its reasonable best efforts to take promptly any and all steps necessary to avoid, eliminate or resolve each and every impediment and obtain all clearances, consents, approvals and waivers under U.S. antitrust laws so as to enable the parties to close the Merger as soon as practicable.
The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us.
The Merger Agreement contains covenants that restrict our ability to, directly or indirectly, solicit, initiate, knowingly facilitate, knowingly encourage or knowingly induce any acquisition proposal, engage in any discussions or negotiations with any person relating to any takeover proposal, or provide any confidential or nonpublic information or data to any person relating to any takeover proposal, subject to certain exceptions. In addition, subject to certain exceptions, our Board of Directors is required to recommend that our stockholders adopt the Merger Agreement.
If the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee of $398 million to ICE or we may be required to reimburse ICE for its reasonable and documented out-of-pocket costs and expenses incurred in connection with the Merger Agreement and the Merger in an amount not to exceed $40 million.
These provisions could discourage a potential third-party acquiror or Merger partner that might have an interest in acquiring all or a significant portion of us or pursuing an alternative transaction from considering or proposing such a transaction
If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed, which could negatively affect us.
The Merger Agreement is subject to a number of conditions which must be satisfied or waived in order to complete the Merger. These conditions to the closing of the Merger may not be satisfied in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed. In addition, if the Merger is not completed by the outside date, either ICE or we may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after receipt of our stockholder approval. In addition, ICE or we may elect to terminate the Merger Agreement in certain other circumstances as set forth in the Merger Agreement.
If the Merger Agreement is terminated, there may be various consequences. For example, our business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Additionally, if the Merger Agreement is terminated, the market price of our common stock could decline to the extent that the current market prices reflect a market assumption that the Merger will be completed. If the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee of $398 million to ICE. In
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addition, if the Merger Agreement is terminated because our stockholders fail to approve the Merger proposal at a duly convened meeting of our stockholders held for that purpose, we will be required to reimburse ICE for its reasonable and documented out-of-pocket costs and expenses incurred in connection with the Merger Agreement and the Merger in an amount not to exceed $40 million.
We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business and operations.
In connection with the pendency of the Merger, it is possible that some customers, suppliers and other persons with whom we and/or ICE have a business relationship may delay or defer certain business decisions or decide to seek to terminate, change or renegotiate their relationships with ICE or us, as the case may be, 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.
Under the terms of the IRC (as discussed above),Merger Agreement, we may determine to forgo certain transactions, including share repurchases, stock issuances, asset dispositions or other strategic transactions for some period of time following the mergers. In addition, our indemnity obligation under the tax matters agreement might discourage, delay or prevent a third party from entering into a change of control transaction with us for some period of time following the Spin-off.
Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the Merger.
In addition, subject to certain exceptions, we are prohibited from (i) engaginghave agreed to use reasonable best efforts to carry on our business in title generation/escrow services, appraisal or defaultthe ordinary course and, field services work (other than technology solutions for such settlement services) withoutto the prior written consent of FNF (subjectextent consistent therewith, to an exception allowing ususe reasonable best efforts to acquire a business engaged in such restricted services if at least 90% of such business’ revenue is contributed by activities other than such restricted services) and (ii) engaging in certain transactions, such as a merger, sale of assets or sale of greater than 5% of its equity interests, with a buyer that derives 10% or more of its revenue from such restricted services. Although we do not presently engage in any of these restricted services andpreserve substantially intact our current business is not restricted, as a resultorganizations, to keep available the services of these restrictions, we may haveour current officers and employees and to forgo certain transactions that might have otherwise been advantageous in compliancepreserve our relationships with our obligations under the non-competition agreement.
Uncertainties associated with the Merger may cause a loss of our management personnel and other key employees, which could adversely affect our business and operations.
ICE and we are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. Prior to completion of the transactions.
Litigation related to the Merger could prevent or delay completion of the Merger or otherwise negatively affect ICE’s and our businesses and operations.
ICE and we may incur costs in connection with the defense or settlement of any stockholder or other lawsuits filed in connection with the Merger. Such litigation could have an adverse effect on ICE’s and our financial condition and results of operations and could prevent or delay the completion of the Merger.
ICE and we are expected to incur significant costs related to the Merger and integration.
ICE and we have incurred and expect to incur substantial expenses in connection with the completion of the Merger. The substantial majority of these costs will be non-recurring expenses related to the Merger, including investment banking fees, legal fees and costs associated with financing the Merger, accounting, accounting, consulting and other advisory fees, severance/employee benefit-related costs, and other regulatory fees. ICE and we will also incur transaction fees and costs related to formulating integration plans for our combined mortgage services businesses. Some of these costs are payable regardless of whether the Merger is completed.
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None.
Not applicable.
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(a) | Exhibits |
| | |
Exhibit | ||
No. | | Description |
2.1 | | |
10.1 | | |
10.2 | | |
10.3 | | |
Amended and Restated | ||
10.4 | | |
10.5 | | |
10.6 | | |
10.7 | | |
31.1 | | |
31.2 | | |
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 Data File formatted in Inline XBRL and contained in Exhibit 101 |
(1) A management or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 601(b)(10)(ii) of Regulation S-K.
* | Schedules omitted pursuant to Item 601(a)(5) of Regulation S-K. We agree to furnish supplementally a copy of any omitted schedule to the SEC upon request; provided, however, that we may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished. |
** | The instance document does not appear in the interactive data |
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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 4, 2022 | By: | /s/ Kirk T. Larsen | |||
| | Kirk T. Larsen | |||
| | President and Chief Financial Officer | |||
| | (Principal Financial and Accounting Officer) |
| | |
|
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