Black Knight, Inc.

Greetings and welcome to the Black Knight fourth quarter full year 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 Steve Eagerton, Investor Relations with Black Knight, Thank you. You may begin.

Thanks. Good morning, everyone, and thank you for joining us for the Black Knight Fourth Quarter 2020 Earnings Conference Call. Joining me today are Chief Executive Officer Anthony Jabbour 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 our, 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 presentation. 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 fourth quarter earnings call. I'd like to take some time today to discuss highlights from 2020 and our plans for 2021. First of all, I want to thank my colleagues for their efforts during 2020. I couldn't be happier with all that we accomplished as a team. Of course, like all businesses, there were challenges that we had to deal with as a result of the pandemic, but our team was relentless in its focus on taking care of our clients, innovation, and setting the stage for growth in 2021 and beyond. In 2020, we completed three acquisitions, including the strategically significant acquisition of Optimal Blue. We also launched several innovative products, completed the implementation of Bank of America onto MSP, and exceeded our sales goal in the midst of a global pandemic, which is nothing short of remarkable. In short, 2020 was a year where we continued to execute against our strategic initiatives to drive long-term sustainable growth and value for our clients and other stakeholders. Throughout 2020, we maintained positive momentum across all lines of business, and finished the year with a very solid fourth quarter, with adjusted revenue growth of 14% and adjusted EBITDA growth of 13%. This performance further demonstrates our ability to deliver for our clients and shareholders, even in the toughest environments. I'll now move on to an update on the performance of each of our businesses, beginning with our industry-leading servicing software business. In the fourth quarter of 2020, we signed four new mid-tier clients to MSP. For the full year, we signed a total of nine new MSP clients, matching last year's count and the most since 2013. These clients, along with the other implementations in process, will add nearly 1.9 million loans and three points of combined first and second lien market share by the end of 2022. This brings our signed first mortgage market share to nearly 64%, and secondly, market share to 30%. These strong sales results are further evidence of the value that servicers see in MSP. In addition to adding new logos, we also pride ourselves on creating long-term trusted relationships with our clients, which are the result of our commitment to delivering exceptional client service and continually investing in our solutions. This client-first culture is a differentiator for Black Knight, and with a key reason, we were able to renew nine MSP clients to long-term contracts in 2020, including Truist and Dovenmule. Our clients and prospects are also drawn to our servicing software because it helps them reduce their overall servicing costs, which have risen 180% since the great financial crisis due to higher delinquencies and consumer protection requirements. While these costs have come down slightly over the last five years, we remain laser-focused on enhancing our clients' profitability by continually delivering innovative solutions. Our clients also select us because they know we understand the critical importance of regulatory compliance and servicing, and we make significant investments to support regulatory requirements. Because of our depth of experience and expertise, along with our continued investments, we believe we are better positioned than any other provider to help servicers meet their compliance requirements, ultimately for the benefit of borrowers. Next, I'm going to provide an update on our origination software business, where we are seeing a high degree of success and significant momentum. As an example, during 2020, we signed 10 new Empower clients, including Carrington Mortgage Services, a top 50 originator. In the fourth quarter alone, we signed five Empower clients and added new channels for two existing Empower clients. Even with this strong sales success, we have significant runway in the loan origination system market, where our assigned client market share is approximately 13% when looking at closed loans across all origination channels. Specifically in the fourth quarter, we signed a top 75 retail originator that is an existing MSP client to a long-term contract to use our loan origination suite of solutions, including Empower, and our origination performance suite that supports the LOS. They will also be using our optimal blue PPE, hedge analytics, and MSR evaluation solutions. As we've talked about previously, our clients can realize significant benefits when they leverage additional Black Knight solutions. We've also seen great momentum in direct sales of our origination performance suite, which includes solutions like point of sale, expedite close, remote online notarization, AVA, and fee services. These solutions augment the LOS, make the origination process more efficient, and help lenders perform stronger. This new team generated three times more direct sales in 2020 than in 2019, which is extraordinary growth. In September, we acquired Optimal Blue and combined that business with our Compass Analytics business, As a result, we now offer the leading product pricing and eligibility, or PPE, engine, as well as the premier hedging capability in the industry. Combined, this team had a record sales year, adding 199 new PPE clients, 63 new hedging clients, and 30 new investors in 2020 to our network. We cross-sold our PPE to six Empower clients in the fourth quarter, further highlighting the benefits of the combination of Black Knight and Optimal Blue. With these strong sales results and early 2021 momentum, we are very confident in our previous comments around 20% plus growth for Optimal Blue. For 2021 specifically, we see growth of 25% and expect EBITDA margins to approximate our software solutions EBITDA margins in 2022. Next, let me touch on our data and analytics business. In 2019, we signed four clients to the newly launched Rapid Analytics platform. By the end of 2020, we had signed 12 more clients to this powerful cloud-based analytics platform. As a result of our recent acquisitions of Compass Analytics, Collateral Analytics, and Optimal Blue, we've gained a wealth of data that we can combine with our other market-leading data assets to provide even more valuable data and analytics across the mortgage and real estate life cycles. As an example, we are now providing mortgage market lock data 60 to 90 days sooner than previously available by our WRAP solution. And we'll soon be providing real-time consumer-specific rate quotes through servicing digital. I look forward to telling you more about our integrated offerings as well as our ongoing cross-sell successes on future calls. As you can see, Despite a year that brought challenges for all businesses, we continue to win new deals and cross-sell new innovative solutions to our clients at a steady pace. These are just a few examples of how we are integrating our data and technology to deliver critical solutions to our clients and how lenders and servicers are looking to a single, trusted, and innovative partner in Black Knight to deliver the solutions they need to be successful. As I've said before, One of our core tenants is to deliver new, innovative solutions with urgency, and to integrate these solutions across our ecosystem to help our clients grow revenue, expand margins, and support their compliance efforts. Next, let me take a few minutes to talk about some of our new innovations, starting with our servicing solutions. We remain focused on growing our servicing software business, not just from new client sales as we discussed earlier, but also through cross-sales of our innovative solutions to our exceptional client base. These cross-sales often come from new offerings, such as servicing digital, and through acquiring, enhancing, and then commercializing products, such as our next-generation customer service solution. These new capabilities, which we are adding regularly, expand our servicing software addressable market every year. As our clients continue to look for ways to increase customer satisfaction, retention, and profitability, we continue to see strong client adoption of our servicing digital solution. In 2020, we signed 20 clients to servicing digital, representing 12.7 million loans. This means that clients representing 65% of loans on MSP have now signed up to use servicing digital, which is remarkable for a new solution and really demonstrates the value both consumers and servicers receive with this offering. Servicers are able to reduce costs and increase customer satisfaction by allowing their customers to self-service. Consumers benefit from the strong capabilities in the app that enable them to look at what-if scenarios around paying off their loans, to reach out for loss mitigation, or in a low-rate environment like today, to start a refinance application. Our loss mitigation solution is another offering we recently introduced that has had great adoption. As the millions of loans that have been on forbearance plans reach their expiration date, servicers need an intuitive, powerful tool that will help them make decisions on these loans. This has led to 23 MSP clients signing up for our loss mitigation solution in 2020. So we now have clients representing 33% of MSP loans signed up for loss mitigation. Moving on to our origination clients, we continue to sell AVA to originators of all sizes. In fact, we signed another top 50 lender in the fourth quarter for this solution and now have six of the top 50 lenders signed up for this innovative AI solution that is seamlessly integrated with Empower. Most recently, we introduced Seller Digital, which leverages AI and decisioning to help correspondent lenders originate and sell loans and is fully integrated with Empower and our PPE engine. In 2020, We also introduced our point-of-sale offering as well as our guided e-close solution. We signed several clients to these solutions in 2020 and have a strong pipeline in 2021. In December, we launched our mandatory analytics solution that enables investors to measure the success of their portfolio sales in comparison to overall market performance down to the loan level to help them make more informed decisions. Finally, Within the DNA space, we signed eight clients to the unique and innovative McDash Flash Data Report Suite, which we introduced last year. As we move to 2021, our plan is simple. We'll focus on executing on our strategic initiative to drive organic growth through winning new clients, delivering innovative products at an accelerated pace, and cross-selling our solutions to existing clients. We will continue to pursue select acquisitions that will help us further solidify our strong offerings. And above all, we will remain focused on providing exceptional support to our clients. Thank you for your time today. Now I'd like to turn the call over to Kurt for a financial update.

Thanks, Anthony, and good morning, everyone. I'll now discuss our fourth quarter and full year 2020 financial results, as well as our outlook for 2021. To summarize the fourth quarter, the underlying performance was very solid. The results came in as we expected, with the exception of origination volumes that came in slightly higher. It was another quarter that demonstrated the resilience, visibility, and predictability of our business. We are also encouraged by the sales momentum that has carried over from 2020 into 2021. 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, full-year 2020 revenues were $1,239,000,000, an increase of 5 percent compared to 2019. Net earnings attributable to Black Knight were $264 million, an increase of 143 percent. Diluted earnings per share was $1.73, an increase of 137 percent. The effect of our investment in Dun & Bradstreet was an increase in net earnings attributable to Black Knight of $62 million, or 41 cents per diluted share. primarily related to a non-cash gain as a result of their initial public offering and concurrent private placement, compared to a reduction in net earnings attributable to Black Knight, $74 million, or 50 cents per diluted share. Net earnings margin was 19.8% compared to 9.2%. Now moving to the fourth quarter, revenues were $342 million, an increase of 14% compared to the prior year quarter. Net earnings attributable to Black Knight, $47 million, an increase of 265%. Diluted EPS was $0.30, an increase of 233%. The effect of our investment in Dun & Bradstreet was an increase in net earnings attributable to Black Knight of $1 million, or $0.01 per diluted share, compared to a reduction in net earnings attributable to Black Knight of $36 million, or $0.24 per diluted share. Net earnings margin was 12.3% compared to 4.3%. Turning to slide four, I'll now discuss our adjusted results for the full year and fourth quarter. For the full year 2020, adjusted revenues were $1,239,000,000, an increase of 5% compared to 2019. Organic revenue growth, a metric that we're introducing due to the acquisition of Optimal Blue, was 1%. Adjusted EBITDA was $610,000,000, an increase of 5%. Adjusted EBITDA margins 49.2% compared to 49.5%. Adjusted net earnings was $322 million, an increase of 9%. And adjusted earnings per share was $2.11, an increase of 6%. For the fourth quarter, adjusted revenues were $342 million, an increase of 14% compared to the prior year quarter. Organic revenue growth was 4.4%. Adjusted EBITDA was $168 million, an increase of 13%. Adjusted EBITDA margin was 49.0% compared to 49.5%. Adjusted net earnings was $94 million, an increase of 16%. And adjusted EPS was $0.60, an increase of 11%. Turning now to slide five, I'll discuss our software solutions segment results. In the fourth quarter, revenue for the software solutions segment increased 14% to $291 million. Our servicing software solutions revenue increased by 2% as loan growth from new clients more than offset the previously discussed headwinds, including the effect of the foreclosure moratorium that in and of itself reduced revenues by $12 million, or 6 percentage points, in the fourth quarter. We continue to be very pleased with the underlying performance in our servicing software business and the outlook for growth as we look forward, driven by both new client additions as well as the prospect of new innovative solutions. In origination software solutions, Revenue increased 56%, driven primarily by the acquisition of Optimal Blue, new clients, and the benefit of higher origination volumes. Fourth quarter EBITDA increased 10% to $167 million, and EBITDA margin was 57.5% compared to 59.3%. The margin decline was driven by revenue mix, which I can summarize in two primary categories. As I mentioned earlier, we had a $12 million headwind from lower foreclosure-related volumes. Those transactions have very little variable expense, so margins are high on the decrease in those revenues. The second factor is the revenue related to Optimal Blue. The margin on that revenue was over 50%, but still less than the segment average. Full year 2020 revenues increased 3% to $1,040,000,000, and EBITDA increased 1% to $605,000,000. EBITDA margin was 58.1% compared to 59.2%. Turning to slide six, in the fourth quarter, revenue for the data and analytics segment increased 16 percent to $51 million, primarily driven by origination volumes, revenue from an acquired business, and sales execution. EBITDA increased 30 percent to $16 million, and EBITDA margin was 30.8 percent, an increase of 310 basis points. Full-year 2020 revenues increased 20 percent to $199 million, and EBITDA increased 54% to $65 million. EBITDA margin was 32.6%, an increase of 720 basis points. It's worth noting that this is the first year that our data and analytics segment exceeded 30% margin. As we've said before, we are focused on achieving 30%, but we will not stop here. Adjusted EBITDA for the corporate segment in the fourth quarter was a loss of $15.4 million, which was flat the prior year quarter, and $59.5 million for the full year 2020 compared to $58 million in 2019. Turning to slide seven, I'll walk through our debt structure. At the end of December, we had cash and cash equivalents of $35 million. Total debt principal as of December 31st was $2,214,000,000. We had a revolver capacity of $702 million, and our leverage ratio was 3.3 times on a net basis. Before I walk through our outlook for 2021, I'll go through the details of our investment in Dun & Bradstreet shares. Starting down to slide eight, we own 54.8 million shares of Dun & Bradstreet. The market value of this investment was $1,265,000,000 based on the $23.06 closing price of D&B on Wednesday, February 10th. Our invested capital is $493 million. That puts our unrealized pre-tax gain at $772 million. our unrealized after-tax gain at $577 million, and the after-tax value of our DMV investment at $1,069,000,000. It goes without saying that we continue to be very pleased with our investment in Dun & Bradstreet and the performance of the DMV team. Turning now to slide 9, I'll walk through our outlook for 2021. DAP revenues and adjusted revenues are expected to be in the range of $1,394,000,000 to $1,422,000,000. representing reported growth of approximately 13% to 15% on a reported basis and organic growth of approximately 5% to 7%. Adjusted EBITDA is expected in the range of $689 million to $711 million, and adjusted EPS is expected to be in the range of $2.11 to $2.22. Additional modeling details underlying our outlook are as follows. With a proposed economic plan from President Biden potentially extending the foreclosure moratorium until September 30th, we are planning for incremental foreclosure volumes to be delayed until at least the first quarter of 2022. That represents a headwind of approximately $11 million in 2021 compared to 2020. Our plan for origination volumes represents a decline of 7% from estimated 2020 volumes of $4.3 trillion, with the first half of the year having elevated volumes from 2020 and a decline starting in the second half of the year. This represents a headwind of approximately $12 million in 2021 compared to 2020. As we discussed on prior calls, we benefited from a temporary reduction in certain operating expenses in 2020 due to COVID-19, specifically related to lower medical costs and travel entertainment expenses. For 2021, we are planning for $9 million in costs to come back. particularly related to medical expenses. In addition, we expect interest expense of approximately $82 million to $85 million, depreciation and amortization expense of $146 million to $150 million, excluding the net incremental depreciation and amortization resulting from purchase accounting. Earnings attributable to non-controlling interest of $20 million to $22 million, this relates to the portion of optimal glue that we don't own, an adjusted effective tax rate of approximately 23 to 24 percent, and full-year weighted average shares outstanding of approximately 156 million. Although we do not provide quarterly guidance, I want to provide you with some color as to how we expect to progress through the year. As a reminder, we plan at the midpoint of our guidance range. In the first quarter of 2021, we expect revenues compared to Q4 to be flat to down slightly due to typical seasonality. We would then expect to see sequential revenue growth over the course of the year from new client revenue partially offset by origination volume headwinds. And finally, we expect run rate operating expenses in the first half to be similar to the fourth quarter of 2020, with sequential increases from Q2 to Q3 and Q3 to Q4 due to resource allocation and typical seasonality. That concludes my remarks. I'll now turn the call over to the operator for Q&A.

Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The 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 key. One moment, please, while we poll for your questions. Our first question has come from the line of Andrew Jeffrey at Truist.

Please proceed with your questions. Hey, good morning. I appreciate you taking the question. You know, it's interesting, Anthony, to listen to you enumerate all of the different digital offerings and the success you're having in cross-sell. Can you talk a little bit maybe about new data sets that you think would be critical and could offer commercial opportunities? You know, I'm thinking especially in your DNA business in light of the potential combination of CoStar Group and CoreLogic, which appears increasingly likely given this morning's announcement.

Sure. Yeah, I'd say, you know, we're obviously very pleased not just with the new digital offerings, Andrew, but also, you know, the data sets. Like I said, we launched This year, the McDash Flash, which was very entrepreneurial of the team in the midst of the forbearance crisis, rising up, getting daily feeds, integrating into MSP, looking at prepayment schedules on a daily basis, and really creating capabilities that never existed before. And, again, very unique to Black Knight because of all the assets that we have So, you know, we'll certainly stay, you know, very focused on that space. We've got some great momentum in our data and analytics business. But more so as the team working together and finding ways that our data can benefit our clients. So we're starting to see, you know, more and more of that. And, again, leveraging our existing relationships with our clients, leveraging our existing solution set with our clients, to really embed this data and make it more actionable, make it more relevant for them. So it's an area that we're excited about, and we're going to continue executing against this game plan. It's a winning game plan that we feel. It's driving real positive momentum. And oftentimes as we talk about what the underlying engine is producing in our company, it's really to show you what we see going on really under the covers, and we've got some great momentum right now that we're going to continue to execute against.

I appreciate that. And then could you just touch briefly as a follow-up on pricing opportunities in Optimal Blue? Is it really just a function of new end market customers and cross-sell, or is there an opportunity to actually explicitly price to value them?

Yeah, no, there absolutely is opportunity of price to value with Optimum Blue, and we're doing that. And like we're doing, and we talk about, you know, constantly, it's really getting, you know, value pricing. We're driving, you know, tremendous value for our clients and just benefiting by some of that. So that work is underway. It's going well. You know, we're fortunate, obviously, that in that space, our clients are, you know, doing exceptionally well in the origination space. So, that's really not proving to be a challenge for us right now.

Appreciate it. Thanks.

Thank you, Andrew. Thank you.

Our next question is from the line of John Campbell with Stevens. Please proceed with your question.

Hey, guys. Good morning.

Hey, John.

Hey, on servicing digital, that's been a real home run for you guys. I just want to focus on that and just, I guess, some of the newer innovations that It seems like they've kind of helped deepen the competitive mode over the last couple of years. But first, on the sharp adoption gains for digital, have you guys ever considered just, you know, I guess folding that into the standard offering and then raising the base price? And then secondly, if you guys can maybe just kind of talk to the newer competitive landscape. It seems like there's a newbie out there that kind of got a recent round of funding. Why it might be hard for up-and-comers to break through in the channel. What do you guys kind of see as your key competitive moats?

Sure. Yeah, I'll start with, you know, on the servicing digital side. We are very excited there, obviously, with, you know, the adoption that we have. And when you look at the pace that we're ripping through our base, it really, I don't know if it would be much different than folding it actually into the product and raising pricing. And pricing is always a sensitive thing with clients as well. So it's always, you know, great when they have the choice, and we're certainly pleased. at the pace that it's growing and running, and clients choosing to come on, choosing to pay the additional fees, and the client satisfaction is really off the charts with it. So it absolutely is a winner for us. And, look, we're going to – it's like a broken record. I apologize. We're going to integrate all the other capabilities that we have in the company through servicing digital, right, like our point of sale to be right in the middle of – you know, a client's experience in getting a refinance offering because as we looked at our data and analytics, we saw that the client was primed for a refinance and presenting it to them at that time. So doing more and more of that thing, leveraging what the exact rate is that they can get through our PPP e-engine, sorry, you know, we'll certainly do, you know, more and more of that because it's a winner for us. It's what our clients need. It's a win-win-win, right, for us, for our clients, for their customers. and we're going to continue to innovate on that. We're doing more and more of that. In terms of new competitors coming in, I'm aware as well of some that raised some money recently. What I'd say is this is a very complex business in terms of really understanding the needs of our clients and how do we make them better. You know, what I'd share with you is, you know, for everything that they promised they can do, we're already there. We're already there plus. And so we're going to continue to focus. You know, what I'm proud of our team here is that we've got great market share. We focus on our clients like they're the only client we have, and we innovate like a hungry startup. We've got that culture here. We believe in it. Every one of us does. If you could walk the halls, you could feel it. And it's resulting in momentum that we have in this business. We saw it growing in 2020. We're excited. We're off to a great start in 2021. We'll always be mindful of competitors in any parts of our business, but we really, really have conviction in our strategy and our game plan, and we're staying very focused executing against it. We've got a lot of confidence it's going to be the winner.

That's a great one, though. Thanks, guys. Thanks, John. Thank you.

Thank you. Our next question comes from the line of Tianxin Wang of JP Morgan. Please proceed with your questions.

Thank you. Thank you. Good morning. Really solid results like you guys went through. Anthony, I wanted to ask on the pipeline again, as always, just you talk a lot about integrated sales, cross-selling, a lot of good examples. I'm just curious, you know, the pipeline going into 2021 versus what it was this time last year pre-pandemic, given all the activity with, you know, it seems like more energy around selling in general. Do you see a pickup here?

Yeah, Tinjin, thank you for that. Without question, like I said, we've got some great momentum. It really feels like we're firing on all cylinders. Sales are growing. Our pipeline is growing. The speed at which we're going to market with new capabilities and enthusiasm, it really, really feels like we've got just some great momentum here that we're really excited about.

And then just as a quick follow-up, I think Andrew asked it, but just, you know, given your time at Dun & Bradstreet and what you talked about on the data analytics side, I mean, is there a lot more to do? Is there another gear to grow faster within data analytics, given some of the learnings and, of course, the synergies you talked about as well? I'm just curious where we are going into 2021.

Well, what I'd say, you know, with our data analytics and certainly with us being more knowledgeable of the space and DNA in general, you know, you could see the great results that we've been having on revenue growth and margin expansion. And I absolutely do think that there's a lot more that we can do. It's really, I'd say, a limitless area for us in terms of not just the data that we can, you know, create and procure, but where it really, really matters the most is how it's integrated into our other applications and how we can drive actionable outcomes from the data. Data in and of itself, it's nice to have. It's interesting. But as I talk to CEOs, I know what they want. It's what I would want. I want something that drives an action. And so leveraging that data more and more into our systems is, sending actionable alerts out to our clients is really what's going to continue to make it more marketable and more valuable for them and really be a direct linkage between what they're spending on it and the total results that they're getting from it. So absolutely, I continue to have a lot of passion around that. I'm very excited with what's in front of us and the team that we have to execute against it. Yeah, that's good stuff. It does feel like there's a halo effect there. Thank you. Thank you, Tenjin.

Thank you. Our next question has come from the line of Ryan Tomasello with KBW. Please proceed with your question. Good morning, everyone. Thanks for taking the questions. Missed some of the prepared remarks, so sorry if this was already touched on, but was wondering if you can give us your thoughts on some of the noticeable activity we saw in the private markets recently for digital PLS providers with pretty significant valuations. Maybe you can give us additional color on the trends you're seeing in your offering there and perhaps frame the size and growth of that business today.

Sure. Ryan. Look, point of sale is an area that we're excited about really because if you think of what we're adding, we're adding just a thin layer on top of an existing LOS system that our clients are already using, back-end systems that they're already using, And so this is just a – think of it as a simple veneer compared to a separate standalone application where there's two different data sets to keep in sync and more complexity around that process. And also the fact that, you know, we own all these systems, it really gives us an ability to create an integrated value proposition for our clients and their customers that I really think is unrivaled. And so – So some of these startups, I'd say, came out the gate early and fast prior to us really getting on our innovation focus. And if you look at the pace at which we've gone up to speed with it, it's been dramatic. And if I look in front from what a client needs, I'll tell you, in every LOS implementation, the hardest part of the implementation is always connecting in the point of sale. It doesn't matter what point of sale it is. That's always the longest pull in the tent. And for us, it being, like I said, just a veneer that we put on top of our LOS, it really is a non-issue as part of our implementations. And so from our client's point of view, I think on the returns that they can get, just the overall ease of doing business, the additional value that we can drive through integration to our other products, I really think it's a no-brainer for them. And we're having those conversations with many clients right now.

Great. And then I was hoping you can give us an update on capital allocation, particularly considering the lockup expiration on Dun & Bradstreet. You know, is bolt-on M&A still an attractive area for capital deployment? And if so, maybe what areas of the business do you see as most complementary for that area? And then more broadly, are there business line extensions that management could consider, particularly on the real estate side as opposed to the mortgage side? Thanks.

Sure. Kirk will keep me honest here if I forget any of those questions. So I'll start with D&B. Obviously, our board is extremely happy with the investments that we've made and how it's performing, and we constantly evaluate all of our capital allocation opportunities during our board meetings. But But from a bolt-on perspective and from a strategy perspective, it really remains unchanged. Our first focus will be on internal investments and innovation. We're very pleased with the traction that we have there. It's going to contribute, you know, around 2% of growth in 21. So the work that we're doing, the investments we're making, we're seeing them pay off. We're seeing them pay off with our client satisfaction as well as revenue growth. We're going to continue to focus on these bolt-on acquisitions. Again, we've got this great opportunity, this great engine here where you could take in a small acquisition, it comes through our engine and comes out much larger on the other end. Both of those are really no-brainer investments for us to make from a capital allocation perspective because the risk is, like I said, very low for both of them. With the recent acquisition of OptumBlue, our consolidated leverage is 3.3 times. We'll have a near-term focus on delevering, but it'll happen quickly, right, with the growth we're having in EBITDA as well as our significant cash generation. But I'd also say if we saw something that, you know, was large and very exciting to us, we'd find a creative way to make it happen. So that's kind of the priorities, I'd say, around the bulletin and cash allocation in general. The last part, would we look for business line extensions in real estate versus just mortgage? Look, our approach here is really an openness to really any M&A, and it doesn't matter if it's in real estate or in mortgage or what parts of it, but more what's the natural adjacency that it has to what we're already doing. So I always think of it, you know, what's our birthright if we acquired this company for us to cross-sell it into more of our clients? And, again, we're always looking at having, you know, low-risk acquisitions, right, going into it, knowing that we can cross-sell it and drive the top line and really take whatever acquisition we make, a low-risk acquisition for us and drive shareholder return. And we're really, really pleased with the progress, you know, that we've made and the track record that we've gotten. We just want to keep that going.

Ryan, one thing I'll add is we saw last summer, I'll say, maybe a little bit before, activity levels pick up with the kind of tuck-in acquisitions that we typically look at. We saw the number of targets increase dramatically. And so I would say that over that time from last summer into today, we've probably been busier than ever looking at opportunities. Our criteria are very rigorous and tight. around what kind of assets we would want to acquire, as Anthony just spoke of. And so we have a team that has a playbook. We execute against that playbook. But it is certainly a very active market out there. And so we'll be very discerning, as we always have been, but know that there are a lot of opportunities. We have ample liquidity to do any and all of what we would fit through our filters. And we'll continue to evaluate and be active there. Thanks. I appreciate all that commentary.

Thank you, Ryan.

Thanks, Ryan.

Thank you. Our next question has come from the line of Ashish Sabudra of Deutsche Bank. Please proceed with your questions.

Thanks for taking my question. So the question focused on the origination software. Obviously, solid momentum there driven by new product innovation. My question there was how should we think about that momentum in the midterms Where are the lenders in terms of digitization of origination? And then we talked about 13% market share in Empower, I believe. What's your market share in the e-closing product and the cross-sell, not only onto the e-closing customer, but also any incremental color on cross-selling to the optimal Q customer base? Thanks.

Sure. Great questions there, Ashish. Yeah, no, the momentum we have with our LOS system power is really exciting. You know, we're probably going to sign, you know, two to three times as many Empower clients in 21 as we did in 2020. So, again, when I talk about momentum, we've got, you know, great confidence in that area as well. I don't have an exact number on market share for e-closing. What I'd say is it's lower than the 13% that we talked about, though, for LOS. And so lots of room for us to run. Like I said, the technology and the messaging and the integration is all resonating.

That's a very helpful color. And maybe, Kirk, if I can ask a clarifying question on the optimal blue contribution in the quarter. I think based on the organic growth, I get like a $29 million for fourth quarter. I wasn't sure if I was doing the math right, if you can confirm that. And then as you think about the contribution in 2021, any incremental color that you collect tax.

Sure. It was a little higher than your 29. It was about $32 million in the fourth quarter. And we talked about strong growth. It grew over 30% in 2020, which came in right where we expected it to be. So everything that they delivered was what we expected, and a little bit more, if you think more qualitatively, we've been very, very pleased with how that acquisition has gone so far and the outlook for the future. As we look to 2021, continued strong performance, and frankly, they had a very good Q4 from a sales perspective, and that's really the precursor to you know, the first quarter and the second quarter for that business because of the short implementation timelines. But, you know, we're expecting – we talked about 20-plus percent growth on prior calls for Optimal Blue for – and when I say Optimal Blue, Optimal Blue proper, the business that we acquired, we've since combined it with Compass. But the business that we acquired we would expect would be growing 25 percent in 2021. So continued very strong performance driven by continuing the sales and new client additions. as well as some of the price-to-value mechanics that were discussed earlier on this call. So very pleased with the team, very pleased how they've become a part of Black Knight and how actually we've become one broader team. And the integration of them with our sales team on our biweekly calls, the integration of the executive team to the broader team, and just really how that has gone couldn't be happier. I mean, the fact that we were able to find an asset like that and action it and have it fit so well culturally has really been terrific and great to see. So we're excited about 2021 with Optimal Blue and, frankly, the years to come. That's great. Thanks again for the comment. Thank you, Ashish.

Thank you. Our next question comes from the line of Kevin Kaczmarek with Zellman & Associates. Please proceed with your question.

Hey, guys. I was kind of wondering, with originators being a lot more profitable than they've been in recent years, do you have a sense, on a per-client basis, how much their spending has grown across other products over the past year or two? And as a follow-up, if their profitability does win as origination volumes fall, how might you help counter that if they try to trim their spending growth and or reduce it over the next couple of years?

Sure, Kevin. So, you know, with us, our focus is always around, you know, how do we drive value for our clients and for their customers, right? So it's either through you know, automation of certain steps which allows them to be more efficient or, you know, giving them compliance capability, which in this new administration we think will be probably a little more of a priority, you know, for all our clients than the previous administration. They're certainly the same, if not more, and what we can provide to our client customers in terms of functionality. So in the origination space, we've had just a lot of innovation in that area that we've developed or that we've acquired, and we've seen great momentum in that space with our clients. As I mentioned, at the beginning of 2020, we organized our origination performance team. That was a team that was selling our innovations to the whole market share, not just to empower clients. And like we said, the TCV from that area tripled in 2020 compared to what we did in 2019. So, again, I think the key message here is our innovations are really resonating with the market. There's lots of value that we're being able to create for them. And I think the fact that they're profitable I'm sure helps. on the sales cycle, but I really feel even in a few years' time when maybe they're not as focused – sorry, not as profitable when refis shift, I think what's going to happen is there will be a more intense focus on other things that we can do to help them lower their costs and help them on the profitability line. So, you know, we're looking at what our innovations are doing to benefit them today. And I think in a few years from now, it will be more of a shift to efficiency as well as innovation. Innovation will always be top of mind for them, right, those needs for them. But I think it will shift to a lot of things that we can do for clients to be more profitable in a few years' time from now.

Okay, great.

Thanks.

That's very helpful. And with one quarter under your belt with Optimal Blue, you guys mentioned perhaps, you know, finding some extra value in one of their servicing exchange platforms. I guess, can you give us some updated thoughts on the opportunity there? Sure.

Yeah. So really what we're, again – we're constantly looking at with the assets that we have, how can we integrate them and create a compelling value proposition that really can't be replicated and can drive real unique value for our clients. And so one of them was tying it to our servicing platform and looking at how we can – we've got a strong market share on our MSP servicing platform, and really what we're looking at was, As clients want to buy or sell loans or buy or sell MSRs, how can we help facilitate that through Optimal Blue? And more than just the actual transfer, how can we also shift, move it from one client's instance of MSP to another client's instance of MSP to really make it easy for more of that volume to flow through the system? because that just doesn't exist today, right? It's, you know, Wall Street back in the day with, you know, a group of folks under a tree trading and, you know, building a capability where we could accelerate the speed and growth in that area by providing a capability that doesn't otherwise exist. So, yeah, so that's absolutely an opportunity that we're looking at working on right now. Okay, great. Thanks a lot. That's all I have. Thank you, Kevin. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Mihir Bhatia of Bank of America. Please proceed with your question.

Good morning. Thanks for taking my question. I'll just start with your guidance. And I was curious, you know, in terms of your range from the low end to the high end, Maybe can you talk a little bit about, you know, some of the puts and takes? Particularly, I guess, what I'm curious on is how much of the way you end up in that range is driven by external factors versus just your own, you know, implementation. Now, obviously, you know, the baseline assumption that you implement at a certain level. But is it like, you know, a little bit more success, cross-selling will move you further up, or is that likely, like, you know, just given implementation timelines, is that less likely to benefit 2021? Whereas for the 2021 guide, it's more driven by, you know, external factors, whether it's foreclosure revenues coming back, origination markets being stronger than you anticipated. Just trying to understand that, how much is execution versus external factors.

Sure, Mihir. Great question. When I walk through the bridge, and as I mentioned on the call in the prepared remarks, we plan at the midpoint. So I'll kind of walk you down where revenue growth comes from at the midpoint of our range. So it's really very much the same algorithm as we've had in the past, which is price will give us about a point of growth. Loan growth on MSP will give us about half a point. The single biggest driver, and I'll come back to the details of this, would be, I would say, within our control, which is sales. So sales will drive, call it 9.5% or so of growth within that number. And within that, you have platform and cross-sell driving most of that. But innovation is driving a couple percent. And that's interesting from a perspective of if you go back several years, two, three years, that innovation line would really be virtually zero. And our long-term algorithm sort of counts on that as 1% to 2% of growth per year, and for 2021, we're expecting 2% from that. So we think that's terrific to see. You know, attrition is about 2%, which is our long-term range. We'd say 1% to 2%, but it certainly is back to, you know, the high end of our normal, but still normal, and certainly much better than last year when we had the anomalous headwinds and call it 7% or so of attrition. The next step in the bridge is really volumes, and it really is the external factor that you described. So foreclosure volumes, about an $11 million headwind. That's a first-quarter issue. If you think about when the moratorium went in place last year, it was in mid-March, and so we have virtually another quarter of that, and we're really not assuming that there's a return to normal volumes at all in 2021. And then the other piece is the origination volume headwind. Again, extraneous. We're assuming 7%. The only thing I can promise you is we'll be wrong, at least by a dollar. But that's called another rough, you know, point or so of headwind. So a couple points from what I would consider truly extraneous factors. And then there's about another point of miscellaneous other things that are a headwind to 2021. So that all nets out to that, call it 6% or so organic at the midpoint. So Just peeling back and unpacking that sales number a little bit, what's interesting about it is, as you would typically expect from us, is about 70% of that's already signed. And so you can then put signed in two buckets of what's already implemented versus what is to be implemented. And, you know, about 70% of that signed amount or half of our sales goal is actually already implemented. And so a lot of progress has been made against what is the largest step in that revenue growth bridge. And so what you're left with is basically about 3% is true go-get. And so if you then say, okay, to get back to your original question, which is what would make us be higher or lower in the range, there's really three things I'd point to. One is origination volumes. They could be better or worse than our 7%. Foreclosure volumes could be Different than our assumption, maybe some could come back this year, but based upon what we think is coming out of Washington, it's going to be still very borrower-friendly. And so we've delayed those revenues out to next year. Again, not lost revenues, delayed revenues to the future. So origination volumes is one. I would say that sell and deliver revenue, that 3% go-get, we could do better than that. We could come up as short of that. So that could be a variable within our range. And then of what we sell, there is a component of some of those ancillary solutions that Anthony was describing that we sell within origination that are transactional in nature, and there's a ramp. And so the ramp of those ancillary solutions can be better or worse than we're expecting as well. So it's really a lot of the same things that we've talked about in the past, but just I want to give you some context for magnitudes. So you can kind of see what it is. You know, still, we're a 90-plus percent, low 90% recurring revenue business. There is just, there's only so much we have to go get in any given year because of the long-term nature of what we do.

Great. That is very helpful. Thank you for that. One other question, I actually did want to talk a little bit about, you know, some of these cross-selling initiatives you mentioned, you know, whether it's servicing digital loss mitigation. Can you just help us pass out some of the not so much the revenue impact, but just, you know, do clients pay more as they implement these on a per loan basis? Is it part of the contract where you really get the benefit when the contract is renewed? You know, you've talked about, you know, you guys increase price for all the additional things you do for the contract when you renew the contract. Is it that way? And just help us dimensionalize, you know, maybe just, What are some of the more exciting things? Is it just servicing digital and the loss mitigation activities? Is there something else that you're particularly excited about within that product innovation suite, if you will? Thank you.

Sure, Mihir. The couplings on the new products that we're launching, yes, we are charging for them. So they're all, you know, chargeable services separate from, you know, a price increase that we talked about around kind of existing solutions that we have. And again, we're very thoughtful on these in terms of making sure we've got very strong client relationships. So on the renewals, our clients are renewing with us. Our renewal rate is off the charts high, so we're very focused on keeping our clients satisfied as we bring more innovation to them and take great care of them. From a Areas which have probably a lot of excitement for us, there's a lot. Obviously, servicing digital we talked a lot about. Loss mitigation is red hot as many of these loans and forbearance come off forbearance. They're going to need to be modified. Again, that integrated tightly into MSP. We understand all the rules and regulations around it. Again, one of the benefits, we have all these large, sophisticated clients that we all brainstorm together on the interpretation of the regulation. So we've got lots of confidence of being in compliance as we make it easier for them to modify the loans. Our e-close has been red hot for us. Our regulatory assist automation in Empower has been a big seller in our data and analytics space. The McDash Flash, you know, taking, you know, the daily views of what's going on in the market, unlike ever before, has been really powerful. And maybe lastly, our RAP application where we're taking our data, our client's data in the cloud, co-collaborating with them has been really powerful. And probably the last one I'd highlight would be, you know, our next generation customer service is really getting some great traction. And so, you know, we keep pushing forward on these innovations and And candidly, what I'm really, really excited about is our hit rate is so high on all of these innovations that we're bringing to market. You know, it's not common to have this many new products catch fire like these are catching fire. So that's what, again, just gives me confidence. You know, we're on the right track. We're doing the right things, all with our client in mind and, you know, with strong client relationships. You know, adding on to our market share, staying focused on our clients and innovating, it's It's a formula that's working really well.

Great. No, it certainly sounds like it. Thank you so much. One last question from me, and then I'll get off. Can you just give us a quick update on the PennyMac situation? Thank you.

There really isn't any new news on that to report at this stage. These things take a lot of work through, I guess, the legal route, but there isn't anything. As soon as there is, obviously, we'll share it with you. Understood. Thank you. Thank you, Mayor.

Thank you. Our next question has come from the line of Manav Patnik of Barclays. Please proceed with your question.

Thank you. Good morning, gentlemen. I was just hoping, you know, you could give us the organic growth numbers by segments of this quarter and perhaps images of what the assumptions are for 2021 by segments as well.

Sure. Let me just quick grab that. I mean, most of the acquired revenue was in I think we disclosed what the dollar amounts are in our release. Most of it is in the software solution segment. And so that's really where most of the adjustment will be. There's a few million dollars in DNA. And so if you look at organically in origination, if you kind of just parse that out, so all of it's in origination. There's no acquired revenue in servicing. So in origination – you know, on an organic basis, it would be a little lower than we have been growing. But it's the reason why we had, Manave, just for your context, $4 or $5 million in non-recurring revenues in the fourth quarter last year. So it would have been, call it high single digit, excluding that. And data and analytics, organic would have been, and I'll even say if you were to adjust for the, we had about $3 million of volume benefit in the fourth quarter as well. And so if you look at that, it would be kind of in the low single-digit area, but that's due to a tough compare in that segment to the fourth quarter of last year. So I think that that's – and then as far as 2021, you know, organically, again, it's – you know, just looking at it by segment, I'll say – You've got servicing that is going to be mid-single-digit grower, strong for underlying performance. The engine is doing very well in servicing. We have that little bit of headwind of a quarter from the foreclosure volumes. In origination, it's going to be a very high reported growth rate because of optimal blue, but organic it's going to be low double digits. And then in data and analytics, organically, it'll be mid-single digits. So really where we would expect it to be, you know, getting through 2020 and growing through some of the historical anomalous headwinds that we've talked about and the foreclosure effect, we're really back to that largely more normal growth rate. Of course, for 2021, we're talking about organic 6% in the face of a couple points of foreclosure origination volume. So You know, we look at it more really a couple points higher than that is really what the underlying engine is doing. But that's really what we see.

Got it. That's super helpful. And then, you know, just on the data and analytics side, I mean, missing the digits is obviously still a healthy number. But, you know, given, you know, all the different things going on in real estate today, do you guys – you know, need another several acquisitions to try and, you know, get that growth to a higher number? Is there, you know, some other dynamics going on in that segment why it can't be, you know, higher, more like in the double-digit range?

Well, Manav, I think in our data analytics business, where it serves, you know, a number of areas, you know, real estate being one of them, our immediate focus had been on solutions that we could provide out of our DNA businesses that would be support our integrated value proposition, right, because it would be wound and tighter, integrated, cross-sold, et cetera. And we think that there are other opportunities, obviously, in just real estate standalone. And what we look at is what's in adjacency to what we currently do, where, again, we're always, you know, from a risk mitigation perspective, that's always the least risky acquisitions. unless there's something, again, that we saw out there that we got really excited about that we thought could really lift the capabilities and the growth rate of that business. But we're certainly looking in that space as well. And, again, we're disciplined buyers. And, you know, like I said, we've got a really strong team. We've got a lot of confidence in that are doing, you know, really well. And so it's an area that we'd love to do more M&A in. All right. Thanks a lot, guys. Thank you, Manal. Thank you. Thank you.

If there are no further questions at this time, I would like to turn the call back over to Anthony Gervais for any closing comments.

Thank you. In closing, you know, we're well positioned to continue the momentum we had in 2020. You know, I'm confident in our ability to grow market share and continue delivering significant value to our clients through our powerful and integrated solutions. I'd like to thank my colleagues for their extraordinary work and commitment as they met the challenges 2020 presented. And I'd also like to thank our clients for their trust and partnership and obviously thank our shareholders for their ongoing support. Please stay safe and have a great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.