Black Knight, Inc.

Greetings, and welcome to the Black Knight Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Egerton, Investor Relations with Black Knight. Thank you. You may begin.

Thanks. Good morning, everyone, and thank you for joining us for the Black Knight Third Quarter 2020 Earnings Conference Call. Joining me today are Chief Executive Officer Anthony DeBoer and Chief Financial Officer Kirk Larson. Our results were released this morning, and the press release and supplemental slide presentation have been posted to our website. This conference call will include statements related to the expected future results of our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release, Form 10-K, and other SEC filings. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release and supplemental slide presentations. This conference call will be available for replay via webcast through Black Knight's Investor Relations website at investor.blackknightinc.com.

I'll now turn over the call to Anthony. Thank you, Steve. Good morning, everyone, and thank you for joining us for our third quarter earnings call. This was a strong quarter for Black Knight, during which we continued to execute against our strategic growth initiatives, including adding new clients to our core platforms, cross-selling, delivering innovative solutions, and making strategic acquisitions. Our sales have been particularly strong so far this year, despite the challenges from this unprecedented environment. This illustrates that forward-thinking lenders and servicers are seeing the value of our innovations, the integration of One Black Knight, and our sense of urgency in all that we do, and they want to reap the benefits that our valuable solutions offer. First, let me provide an update on each of our businesses, beginning with our servicing software business. In the third quarter, we signed three new clients to MSP, including Caliber, a top 25 non-bank servicer, which I mentioned on the last call, and two mid-tier servicers. Year-to-date, we've signed five new MSP clients, representing over 750,000 loans. We also renewed our MSP contract with Dover Mule Mortgage, a top 10 servicer. In our origination software business, we've continued the momentum selling Expedite, AVA, fee services, and exchange, which are solutions that can be used with any loan origination system. At the end of last year, we reorganized the team that sells these solutions, and the results have been remarkable, as we've seen sales contract value more than double. We also had continued success selling Empower to mid- and top-tier lenders. In fact, we signed two new lenders to our Empower platform in the third quarter. In addition to signing the truest long-term renewal, That includes adding to BB&T production onto Black Knight Systems, which we previously discussed. Next, I'd like to talk about our data and analytics business. Last year, we launched the Rapid Analytics Platform, or RAP. We signed twice as many clients to RAP in the third quarter than we have since launching the product last year, which speaks to the value our clients see in the solution to help them make informed business decisions and develop effective and informed strategies. In addition to being a powerful platform, RAP drives more bundled data sales and is a differentiator when it comes to customer renewals. At the onset of the pandemic, we launched the McDash Flash data set to give clients deeper daily insights into the impacts of the coronavirus on servicing performance. In the third quarter alone, we executed eight deals that included both McDash Flash data and RAP. The companies that will be leveraging these unique solutions include four of the top investment banks and a Federal Reserve Bank. I frequently share with our clients, our colleagues, and with you our intense focus on innovation, integration, and urgency. It is this commitment that has enabled us to launch our next generation customer service solution, which helps MSP clients better support their customers by displaying all the information they need to respond to a caller's questions in a single location. so they can respond quickly, efficiently, and accurately. We've signed four clients to this solution since launching it last month. We also continue to add capabilities to our digital origination suite. Our digital point of sale solution, which is now generally available, simplifies the loan application process by leveraging AI throughout the process and enables consumers to complete the loan application on their schedule and from any device. Complementing this solution, we have also delivered a digital solution for loan officers, which gives them a single mobile responsive platform with all the tools they need to serve their customers anytime, anywhere. Next, I'm going to talk about some enhancements we've made to our expedite close solution, which uses advanced intelligence to select the best, most permissible way to digitally close a loan for each jurisdiction. In the third quarter, we acquired DocVerify and integrated this leading software into Expedite Close to support e-notarization and remote online notarization. Another innovation in the digital mortgage lifecycle journey is our new guided close solution that guides borrowers on a document-by-document basis through the closing package. Together, these solutions are transforming closings into a more efficient and contactless process. As the trend towards a fully digital mortgage process accelerates, particularly in the socially distanced environment, these solutions further enhance our clients' ability to serve their customers where they are. All the solutions I just mentioned are integrated and further our digital footprint. We are the only provider in the industry that offers comprehensive platforms across the loan lifecycle, as well as digital solutions that can be leveraged at any point in the process, to help our clients be more efficient and better serve their customers, which leads to increased customer satisfaction and retention. Finally, we continue gaining traction with our innovative servicing digital and loss mitigation solutions. In fact, we now have 43% of the loans on MSP signed for servicing digital and 34% for loss mitigation. Next, I'd like to give an update on our acquisition of Optimal Blue, which closed in September. By combining the Optimal Blue and Compass Analytics teams and offerings, we now have the leading product pricing and eligibility engine, as well as the premier hedging capability in the industry. The combined team has a great deal of experience in both mortgage and technology that will help drive continued innovations for our company. We've already started to identify ways we can aggregate our strong data assets to deliver even more valuable analytics and insights to our clients. The power of this combined set of solutions is resonating with clients of both companies. I look forward to providing you with additional updates on this acquisition on future calls. In closing, it's clear that the core fundamentals of our business remain strong and we continue to execute on our strategy to drive revenue growth by adding new clients, expanding relationships with existing clients, delivering innovative solutions, and pursuing strategic acquisitions. I'm excited about the momentum we have built and how we'll continue to transform the industry. Thank you for your time today. Now I'd like to turn the call over to Kirk for a financial update.

Thank you, Anthony, and good morning, everyone. Today I'm going to discuss our third quarter results and our updated outlook for the year. To summarize, the underlying performance in the third quarter was very strong. The results came in as we expected, with the exception of origination volumes that came in higher. It was another quarter that demonstrated the resilience, visibility, and predictability of our business. With that said, I'll take you through the details and our outlook. Turning to slide three, which shows our GAAP results. On a GAAP basis, third quarter revenues were $313 million, an increase of 4.5% compared to the prior year quarter. Net earnings attributable to Black Knight were $128 million, an increase of 243%. Diluted earnings per share was 82 cents, an increase of 228 percent. The effect of our investment in Dun & Bradstreet was an increase in net earnings attributable to Black Knight of $87 million, or 55 cents per diluted share, primarily related to an $88 million non-cash gain as a result of their initial public offering and concurrent private placement. Net earnings margin was 36.7 percent compared to 12.5 percent. Turning to slide four, I'll now discuss our adjusted results for the third quarter. Third quarter adjusted revenues were $313 million, an increase of 4.5% compared to the prior year quarter. Adjusted EBITDA was $155 million, an increase of 3%. Adjusted EBITDA margin was 49.5% compared to 50.1%. Adjusted net earnings were $81 million, an increase of 7%. And adjusted earnings per share was 52 cents, an increase of 2%. Turning now to slide five, I'll discuss our software solutions segment results. Third quarter revenues for the software solutions segment increased 1 percent to $260 million. Our servicing software solutions revenue declined 4 percent as a result of the previously discussed headwinds, including the effect of the foreclosure moratorium. The year-over-year performance improved from the second quarter as a result of the Bank of America conversion and the anniversary of certain of the previously discussed anomalous headwinds from 2019. We continue to be pleased with the underlying performance in our servicing software business and the outlook for growth as we look forward. In origination software solutions, revenues increased 20%, driven by new clients, high origination volumes, and revenue from acquisitions. Optimal Blue contributed $5.5 million of revenue in the third quarter. Third quarter EBITDA decreased 1% to $152 million, and EBITDA margin was 58.4% compared to 59.5%, due to unfavorable revenue mix. Turning to slide six, third quarter revenues for the data and analytics segment increased 27% to $53 million, primarily driven by strong sales execution, high origination volumes, and revenue from an acquired business. EBITDA increased 74% to $18 million. EBITDA margin was 34.5%, an increase of 940 basis points from the prior year quarter. Adjusted EBITDA for the corporate segment was $1 million, unfavorable compared to the prior year quarter, driven by higher incentive-based compensation. Turning now to slide seven, I'll walk through our debt structure. At the end of September, we had cash and cash equivalents of $31 million. Total debt principal was $2,323,000,000. We had revolver capacity available of $612 million, and our leverage ratio was 3.6 times. Before I walk through our updated outlook for 2020, I'll go through the details of our investment in Dun & Bradstreet shares. Turning now to slide eight, we own 54.8 million shares. The market value of this investment was $1,407,000,000 based on the $25.66 closing price of D&B on September 30th. Our invested capital is $493 million. That puts our unrealized pre-tax gain at $915 million. Our unrealized after-tax gain at $683 million. and the after-tax value of our D&B investment at $1,176,000,000. It goes without saying that we have been very pleased with performance of the D&B team and our investment. Turning to slide nine, I'll discuss our updated outlook for 2020, which we are raising to reflect the optimal blue acquisition, the outperformance in the third quarter, and expectations for the fourth quarter. Revenues and adjusted revenues for the full year are expected to be in the range of $1,229,000,000 to $1,235,000,000. Adjusted EBITDA is expected in the range of $603,000,000 to $608,000,000, and adjusted earnings per share is expected to be in the range of $2.03 to $2.07. Additional modeling details underlying our outlook are as follows. We expect full-year interest expense of approximately $64 million, full-year depreciation and amortization expense of $136 million, excluding the net incremental depreciation and amortization resulting from purchase counting, an adjusted effective tax rate of approximately 19% in the fourth quarter and 22% for the full year, including certain discrete tax benefits, and fourth quarter weighted average shares outstanding of $156.5 million, and full year weighted average shares outstanding of approximately $153 million. Thanks again for your time this morning. I'll now turn it over to the operator for Q&A.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from John Campbell with Stephen Incorporated. Please proceed with your question.

Hey, guys. Congrats on the quarter. Really good success with the innovation efforts and then closing on awesome blue. That's great work. Congrats.

Thank you, John. Thanks so much.

First question, how many loans, if you can just update us, how many loans are in MSP now and what's the expected kind of loan count once you get through the implementations?

The loans today are $32.7 million, a first 3.4 on seconds, which is 36 total. So market share is 61% on first, 26 on seconds, and then pro forma would be a little over 62 on first and about 29 on seconds.

Okay, that's helpful. And then on Optimal Blue, I think you guys originally kind of framed that up as I think $120 million growing, 30-ish, 35%, something like that. It looks like you guys might be a little ahead of schedule now, so if you could just maybe provide us an update on kind of the Optimal Blue outlook and if you could maybe give us a little bit more color on the contractual versus transactional mix at this point.

Yeah, it's still in that area, John. It came in, frankly, as we expected for the two weeks we had in the third quarter and the forecast for the fourth quarter. was in line with that expectation, so right in that $120 million area. From a transactional versus subscription, it's about 80% subscription, a little bit less, but it's a business that is very similar to most of what Black Knight is with that very high subscription content, a little bit of benefit from volumes, but not nearly as sensitive as some other origination software providers in this space. So very high recurring, which as we talked about last quarter, something that we really like about the business is that predictability and consistency in the revenue base and then, of course, the high incremental margins.

Okay. And then on the modeling, I know they have a little bit of data and analytics revenue, but is it safe to assume that the vast majority of that falls into origination for you guys?

It all does. So Optimal Blue fully reports into our origination software business. We actually, with a combination of Compass, created a secondary marketing technologies division that's the combination of Compass and Optimal Blue.

Perfect. Thank you, guys.

Our next question is with Andrew Jeffrey with Truist Securities. Please proceed with your question.

Hey, good morning. I appreciate you taking the call. Good morning. Optimal Blue seems to be a terrific fit and obviously a very strong future growth driver. Anthony, can you talk a little bit about maybe a product roadmap and exactly how we might think about the integration of Optimal Blue solutions and perhaps new products solutions that they grow out of the consolidated entity. Is that a 21 event? What's the kind of timeframe in the roadmap there?

Sure. Well, the first integration, Andrew, is integrating Empower with Optimal Blue, and that's targeted for Q1. You know, off and running in terms of, you know, the projects, the selling, sharing leads back and forth, et cetera, on a more broad basis. But on that integration, it's looking Q1. And in terms of really new possibilities coming from it, as Kirk said, we created a new division, our Secretary of Marketing Technology Division, where we put our Compass Analytics business together with Optimal Blue, where there could be a lot of great collaboration and specialization in that space. And we'll constantly find new ways to innovate and ideas to come up with. The one that probably has the most steam right now that we're pursuing is a trading platform. Looking at what Optima Blue had previously, but adding seasoned loans to it from MSP and the analytics and the data that we have on those loans is probably the soonest one. And I imagine we'll we'll launch at some point next year and, you know, do what we always do, you know, work with our clients, beta test, learn, pivot, and then come on a GA basis.

Okay. That's helpful. Thank you. And then I just wonder if you could just comment on the macro environment. To the extent that rates stay low and the purchase market is robust, As we start to see perhaps some increased foreclosure activity, is this kind of the best of all possible worlds looking to next year for Black Knight?

Well, like I said, you know, the thing that we pride ourselves on is not being affected as much by, you know, other impacts on the environment. But certainly, as you've seen, unnatural things can occur, such as the foreclosure moratorium, which did occur recently. And as we see things improving, saw the Pfizer announcement this morning, and hopefully unrelated to our call, it's good for all humanity in terms of we work our way out of this pandemic. But certainly rates are low. We're looking to stay low. I think, you know, President-elect has talked about, you know, tax credits to spur on. more purchase for low income. So we anticipate that continuing. The foreclosure moratorium does next year, we'll see. But we're certainly in a good spot. There's headwinds and tailwinds, I think, that we can go through across all these things. We're starting to think about them. Would there be an increase in regulations, for example, as a potential... a headwind to the industry. It's something that's been classically a tailwind for companies such as ourselves where, you know, strong industry leaders or clients turn to, you know, to stay within guidelines. So we'll work through that, but we certainly feel good about where we're positioned. We feel good about next year.

Great. Thank you very much. Thank you.

Our next question is with Ashish Sabhadra with Deutsche Bank. Please proceed with your question.

Thanks for taking my question. So first one on the origination suite, you've built out a great product there with a combination of the digital suite plus the optimal blue. I know it's still very early days, but I was just wondering how are your client conversations, how is the pipeline building up for customers the origination suite. Obviously, you've had a really great success over the last few quarters, but how do you think about the momentum going forward? Thanks.

Sure. We feel great about the momentum going forward. I certainly feel that we're leaders on the digital channels prior to the pandemic, and that's just exaggerated the trends and accelerated them. And so the innovations that we're bringing to market really is resonating with our clients, and we're seeing it in the conversations that we're having with them and our prospects. So short answers, we feel very good about how we're positioned there.

That's great. And then just quickly on data and analytics, Kirk, if you can give us what the organic growth there was, excluding mortgage and acquisition. And then follow-up there, obviously pretty strong momentum there as well, eight new deals. Can you just talk about how do you think about, again, are you gaining market share in that business and what's driving that strong momentum? You called out the RDP platform as well as McDash, but just wondering are there other products which are in the pipeline as well? Any color on those fronts? Thanks.

Sure. So to answer the first question, the quantitative aspect, if you would back out collateral analytics and The effect of volumes, it was about 6% growth. So very consistent, and we're continuing to be very pleased with that performance, as well as the margin performance in our data analytics business. So very consistent with the last several quarters. So very good performance there. From a what's driving it, it's actually pretty broad-based. We are continuing to focus on cross-selling to the existing client base and leveraging those relationships. We're leveraging the sales. and the receptivity of the rapid analytics platform, which not only is a way to – it's not only a platform sale, but it's a way to deliver more data. And so it's actually a way to deepen those partnerships as well. But it's really across the board, and it's been remarkably consistent over the last four or five quarters what that performance has been, and we think that that's a reasonable expectation as we go forward as well.

Thanks, and congrats on such a solid result. Thank you. Thank you. Thanks, Ashish.

Our next question is with Tin Jin Hong with JP Morgan. Please proceed with your question.

Hi. Good morning. Really, everything was very strong. Everything is ahead of our expectations, it looks like, except for the servicing margins came in a little bit light. You overcame it with revenues overall, I know. But just trying to think about that line there specifically. I know Bank of America boarded. You've got mix, et cetera. Any one-timers to call out there or considerations for that line ahead?

You're saying software solutions margins?

Yeah.

Yeah. Good question. Really, there's no one-timers from an expense perspective in the third quarter. We didn't have the benefit of lower medical costs like we had last quarter. That was something that happened that didn't recur. We got back to more of a normal level from a year-over-year basis. It comes down to revenue mix, really simply put. So some of those anomalous headwinds were transactional with very little with very little related variable cost. We had that termination fee and origination last year. Those come at 100% margin. And then it's replaced with margins that require support, even on a relatively limited basis with the new clients. And then, of course, some of the acquired businesses. So it really is a revenue mix story. More than anything, there's really nothing else to note.

Gotcha. No, thanks for that. And then just on the change in the guidance here, is it predominantly optimal blue coming in with the acquisitions, or is there some underlying performance benefit there? Is there any way to maybe break that up for us a bit?

Sure, sure. So we exceeded our own expectations in Q3 because of volumes. And so if you take the Q3 beat excluding optimal blue, that would be kind of the first layer. The next layer would be optimal blue, and I think you can back into what those numbers are. And then there's an incremental amount above that, if you look at it, where the new guidance range is. And that's, frankly, in an environment like this, when we gave our guidance for the second half of the year, we didn't think there was any reason to be anything other than potentially a bit conservative. And so with six months left in this environment, Even with as predictable as our business is, we felt it prudent to be a little conservative. Now we have three months left. It's half the time remaining, and so I think we tuned up the guidance, narrowed the range, raised it, and now we get back to sort of thinking of things at the midpoint going forward. But it really is that. It was first volume, second album of blue, and then third album. It was just a bit of conservatism in the prior guide.

Happy to see the raise. Thank you, guys.

Our next question is from Ryan Tomasello with KBW. Please proceed with your question.

Good morning, everyone. Thanks for taking the questions and echo the congrats on a strong quarter. Just following up on your comments to an earlier question, it seems like one of the lower-hanging fruit opportunities at Optimal Blue is the cross-sell to the existing Empower clients once that integration is completed. So can you talk about what that sales cycle will look like? I know, Anthony, you mentioned it's ongoing. You know, the level of adoption you might expect there from Empower clients and what the opportunity could be in terms of revenues from those clients.

I'd say in terms of how I see the sales process, you know, progressing is, you know, we're in constant communication with our clients about all the innovations that we've got coming out. The majority of Empower clients had basically a built-in PPE engine inside of Empower, and obviously Optima Blues is a lot more powerful. So we're excited to bring that new capability, you know, to those clients. And as we sell new Empower deals, we will sell them with OptumBlue just bundled in and automatic and already integrated. So what we want to do is we want to change just how we go to market in terms of selling a loan origination system. Of course, it has a PP Engine integrated into it. It's not a separate decision. More and more capability that we're bringing to market, we want to bring it integrated into a sales cycle. and do more and more in a more integrated way, making it easier for our clients. So that's really what our focus is from a revenue perspective.

Yeah, we usually don't get into pricing for particular deals, but as Anthony said, we'll end up bundling it into each of the deals. And for existing deals, we'll add it on a per loan basis and then, of course, get the benefit of having minimums in the contract as well. But it's You know, I think it's something that certainly will be a nice add to the revenue per loan that we'll get from our Empower clients, and certainly it'll be something that will help contribute to that 20% growth that we've talked about over the next several years for Optimal Blue.

Great. And then, you know, 2020 is clearly shaping up to be a very strong year in terms of new sales and implementation. So I guess... Without explicitly asking for anything about 2021, could you maybe walk us through the moving pieces as we think about the organic growth power in the business next year that is already really in a bag, per se, from recent sales, layering in optimal blue, being naturally accretive to growth, as well as some other factors like the ongoing impact of forbearance and foreclosure moratoriums into next year? And specifically, you know, for recent client wins and implementations across software and DNA, is it possible to quantify the cumulative impact of those from a run rate revenue perspective?

Sure, I'll take that one, Ryan. It's a great question. Certainly it is that time of year where we're working on budgets and thinking about in very detailed terms all the things that you're asking about. It's a bit premature for us to go through those details, but what I will do is walk you through things in three buckets the tailwinds that will drive the growth next year, the no and headwinds as we sit here today, and then some things that are kind of a coin flip, I'll say, meaning we don't exactly know which direction that's going to go next year at this point because things can change. But the single biggest driver of growth, as it always is, is going to be the revenue-related new clients on our platform, so MSP, Empower, Foreclosure and Bankruptcy, the primary platforms. And I would say we certainly have a nice backlog going into next year. I won't characterize it where it is relative specifically to where we are this year, but we'll have a full year of Bank of America versus five months this year. And then certainly have other clients that have gone live or are signed and will go live next year. So that will be the primary driver of growth next year. And we'll go through the details of what our expectations are for that when we give full guidance on our next call. The other thing benefiting next year is going to be a return to more typical attrition. So we will have gotten almost entirely through the anomalous headwinds we talked about from last year. As some of those have abated, another one will abate later this year and then just a little bit of carryover to next year. So we'll get back into that, you know, two-ish percent kind of attrition level that we had experienced in the past. And then as you said, the accretion from the optimal blue growing at the rate that it's growing. So just not thinking of it just as we'll have a full year of it, but it is accretive to our overall organic growth rate. From a headwind perspective, in origination volumes, there's a large refinance eligible population, but We and most others are calling for next year's RE-5s to be lower than this year. Where that ultimately lands, we all will have to wait and see because it can move around a bit. But as you think about that number, as Anthony said before, we're just not that sensitive to origination volume. So this year, with the significant pickup and record-level originations, it's a couple points of growth. And so as you think to next year, if there is a headwind, It's, you know, one to two points maybe. We'll go through those details and tell you our assumptions on the next call, but in the grand scheme of things, it's just not a big number. And then, you know, one kind of smaller detail, but I'll tell you this just because it's something we know is, you know, as you know, when we implement our clients on our platforms, MSP or Empower, for example, many times we get paid for the implementation and we recognize that over the life of the contract. We had a relatively large client that renewed and This year, it got to the end of the first contract and renewed and extended, and that deferred revenue amortization has now been fully recognized, and so that's probably a half point or so of headwinds next year. So not the biggest number, but I'll point it out because you asked. And then the last thing, you know, as you think about the piece, the third bucket where I say it's something that we don't know at this point, it's the foreclosure volumes. You know, I would say as we sit here today, we expect them to come back in the second half of next year. But the exact timing and quantum is something that we're going to have to monitor. And it's another thing that I would expect that we would be very explicit with what our assumptions are when we give you guidance for next year so we can all measure against the same set of assumptions. So that's kind of the revenue side. One quick thing I'll mention on the expense side is we, like everybody else this year, benefited a bit on the expense side related to travel and entertainment and sales and marketing costs because we're all working from home as well as we and I know many others also experience lower medical costs. And those are things that as we look to next year, we'll return maybe not back to norm because things won't fully be normal next year, but certainly there'll be some element of those coming back. And we'll talk about that too when we give guides next year. Think about the building blocks for next year. That's how we're thinking about it, and I think it will be important next year, giving some of the variables there that we go through those details with you, but that will be something we'll go through on the next call.

Great. Thanks, guys. Thanks for taking the questions. Thanks, Brian.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is with Jake Williams from Wells Fargo. Please proceed with your question.

Good morning, everyone. Good morning, Jake. I wanted to touch on the strong margin expansion in DNA. How much of that was driven by favorable operating leverage with the originations tailwind versus any structural cost reductions or anything more ongoing?

That was more about volumes. That was more about – and I wouldn't say just origination volumes, though, because it was growing 6% on a natural basis. And so it really is the operating leverage in the business. There were no brute force cost actions there that really benefited, but it really is a business that we've been very focused on positioning it for efficiency. And so in most cases, we've made the investment once, and we can deliver it many times. which is the way we like our business to run. There are certain aspects within volumes that do bring with them some cost to get sold, but in other cases, it's a matter of selling, and there isn't a whole lot of variable cost. So we're, as I said before, very pleased with the performance in that business and maintaining for now with the third quarter in a row of margins over 30%, and that's going to be a focus to continue going forward. Great. Thank you very much.

Our next question is with Stephen Sheldon with William Blair. Please proceed with your question.

Good morning. Thanks for taking my question. Just one quick one here. I just want to ask on the servicing side, thanks for doing the market share update. I think you said 29% on second lien, and I know you had key bank recently. So I just wanted to ask how conversations on the second lien side in particular are going and the potential for market share to continue moving higher as we look out over the next few years.

Well, we continue to have lots of great conversations around it. The value proposition that we came out with actually continues to resonate more because now as we come up with servicing digital, that also works with the second lean solutions as well. So it's a more holistic solution even than when we previously launched it. So we feel very good about our continued momentum that we're having. in the space and look forward to continue to provide you updates on, you know, new wins as they come. Thanks.

Our next question is from Mihir Bhatia with Bank of America. Please proceed with your question.

Good morning, and thank you for taking my questions. I wanted to ask about the data and analytics business. You saw some nice growth there this quarter, but, you know, it has a lot of pieces in it. So one question I did have was, can you provide maybe a little bit more color on certain things that might be resonating a lot currently? And is there anything in there, like is there any risk that, you know, this is resonating, like those pieces are resonating because of elevated forbearance and people – maybe need a little bit more data and analytics and some of that could start dropping off next year or the year after that? Or is it more the case of generally once you get in there and you start providing some of these, they tend to be pretty sticky and customers don't give up that data that easily?

Sure. There's probably a few things I'd attribute the success we're having in DNA growth. Obviously, in addition to great leadership and doing all the right things, The first is RAP and the introduction of our RAP platform. It really gives an opportunity for our clients to view their data with our data in a sandbox, so to speak, and really look for new insights from it. And so it's powerful in that way, and it's led to a lot of data sales for us. So that would be one. The 2nd would be our flash. So early on, when the pandemic broke out, we were very quickly working with all sorts of agencies and organizations and sharing our data as to what we're seeing. You know, really on the front lines, and that's contributed to interest and I'd say relationships. that have then grown beyond the initial forbearance relationship into other types of data and analytics we can provide to these organizations. And the third, I'd say, is really just our integration to our core platforms. So again, we talk about servicing and originations and data and analytics, but from a client perspective, we just want them to see one integrated Black Knight. And so as we integrate our offerings more and more into these core platforms and we sell them and include them in the packaging, that's really continuing to help us grow that business as well. So those would be the three areas I'd probably call out.

Got it. And then just one last question for me. Now that, you know, Optimal Blue is kind of acquired, I guess, as closed, can you just talk about what your capital allocation strategy looks like from here? In terms of your appetite for M&A, is it more likely near-term to be, you know, smaller tuck-in type acquisitions, or is it you still open to wider and just generally on your capital allocation? Thank you. That'll be all.

Sure. Yeah, at a macro level, our priorities remain unchanged from a capital allocation perspective. You know, first, we're going to continue to invest, you know, in internal investment and innovation. We're very pleased, you know, with what we're seeing there and obviously going to stay the course. But, you know, as you said, with the acquisition of OptumBlue, we've increased our consolidated leverage to the mid-threes. And so, I'd say near-term, we have a focus on delevering, which will happen quickly based on the growth in EBITDA as well as our significant cash generation. But that delevering won't reduce our ability to have potential tuck-in acquisitions or obviously our continued focus on internal investments.

Thank you.

Thank you. Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back over to Anthony Chapar, CEO, for closing remarks.

Thank you. In closing, I'm confident in our ability to grow market share and continue delivering significant value to our clients through our powerful and integrated solutions by acting with urgency to support their success. These efforts will continue to drive long-term growth and create value for our shareholders. Finally, I'd like to thank my colleagues for their extraordinary work and commitment to our clients and to our clients for their trust and partnership. Last, I'd like to thank our shareholders for their ongoing support. Please stay safe and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.