Earnings Transcript for BKI - Q2 Fiscal Year 2020

Operator: Greetings and welcome to the Black Knight Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Steven Eagerton, Vice President of Investor Relations at Black Knight. Thank you sir, you may begin.

Steven Eagerton: Thanks. Good morning everyone, and thank you for joining us for the Black Knight’s second quarter 2020 earnings conference call. Joining me today are Chief Executive Officer, Anthony Jabbour; and Chief Financial Officer, Kirk Larsen. Our results were released this morning, and the press release and supplemental slide presentation have been posted to our website. This conference call will 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 our 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 will now turn over the call to Anthony.

Anthony Jabbour: Thank you, Steve. Good morning everyone, and thank you for joining us for our second quarter earnings call. Overall, this was another solid quarter during which we continue to execute against our strategy and demonstrated that despite facing headwinds resulting from the COVID-19 pandemic the core fundamentals of our business remain strong. We can to assign and implement new clients, deliver innovative solutions and pursue strategic acquisitions. Now, let me provide an update on our business. At our service and software business, we continue to sign clients to our industry leading MSP platform since the beginning of the year four servicers representing more than 700,000 loans, selected MSP including Caliber, our top 25 non-bank servicer. As a result, our client list now includes 18 of the top 25 servicers. These new sales are further evidence of our ability to add both top tier and mature companies to our client list. In origination software business, we had continued success in the second quarter selling our Empower and Empower Now, and our complimentary origination solutions to companies of all sizes. As an example, in April Carrington mortgage services, a top 50 originator selected Empower as its LOS. Additionally two lenders, including our current MSP client selected Empower Now for the origination platform. Our relentless focus on delivering innovative and integrated solutions and providing superior client support are the fundamental reasons we are able to win new clients and continually renew existing clients. One specific renewal I would like to call out is Truist, which was created from the merger of SunTrust and BB&T, and is now the sixth largest commercial bank in the country. In addition to signing a multi year renewal Truist also expanded its use of our solutions across the enterprise, including MSP, Empower, Lending Space, and several of our data and analytics offerings. As part of Truist enterprise renewal, the bank will be consolidating its BB&T origination volume onto our Empower and Lending Space platforms. It is important to note that BB&T was a top 25 originators prior to the merger. I’m proud of our sales team has embraced the current environment and has leveraged new ways to engage with clients and prospects. Our efforts have resulted in total new sales contract value increasing double-digits compared to last year. We also continue to make progress with implementations, which are doing while many of our clients and team members continue to work remotely. In our servicing software business, we currently have 10 new MSP implementations and five new home equity conversions in process. We are also very pleased to have successfully completed the Bank of America implementation this past week. This is just another proof point of our ability to manage conversions for the largest servicers. We look forward to working with Bank of America and building on our already strong partnerships. As part of our ongoing strategy to expand our addressable market and to deliver additional value to our clients. Over the past few quarters, we have discussed some of the solutions we were developing to help our clients better serve their customers, increase productivity and comply with regulatory requirements. For origination clients, we have launched new solutions such as Expedite Close, AIVA, Regulatory Assist and AIP, the Actual Intelligence Platform. For our servicing clients, we have delivered powerful solutions such as Servicing Digital and our enhanced Loss Mitigation Solutions, and we continue to add actionable servicing analytics to AIP. These offerings have clearly resonated with the market. We have been very pleased with the positive response from our clients and the resulting demand. Most recently, we have seen a significant interest in an adoption of our Expedite eClose and eSign Solutions, as well as our Loss Mitigation Solution since the beginning of the pandemic. Speaking of innovation, next I would like to discuss our announcements regarding our plans to acquire Optimal Blue. We are incredibly excited about this acquisition, as it joins two industry leaders who together will deliver more industry leading, innovative and integrated solutions that will transform the industry. This acquisition further positions us as a leader in the originations in secondary market space and it provides significant potential for cross sell opportunities to our combined client base, all of which support our long-term strategy. The acquisition broadens our product pricing and eligibility engine client base, by adding Optimal Blue’s network of nearly 1,000 originators, 185 investors and more than 3,500 industry participants in total. We also see a great deal of opportunities with Optimal Blue’s Resitrader online loan trading platform, which connects investors to a large basis sellers. By adding our comprehensive data assets and making minimal investments to enhance the trading platform. We will be able to offer this solution to our servicing clients to facilitate the buying and selling of new and seasoned loans as well as MSRs. We will then be able to easily transfer those loans between clients, which will further streamline this process for our clients. Optimal Blue also has origination centric data and analytics that will enhance our existing data assets. Specifically, because of their expansive network of providers and robust technology solutions, Optimal Blue is able to provide accurate, granular and real-time insight into pricing data, competitive positioning and industry trends. This data enables lenders to benchmark their products and services against others in the market, validate their strategies and maximize the revenue. We are extremely excited about our ability to integrate this data into our comprehensive offerings to deliver even greater, more timely, and actionable insights to our clients. We look forward to sharing our progress as we integrate and deliver these solutions to the market. Lastly, I would like to give a brief update on our investments in Dun & Bradstreet. As I said, when we made the investment in D&B, our baseline assumption was that we would generate a strong financial return on our investment for the benefit of Black Knight shareholders. We were confident the company would performed well and meet the aggressive financial and operational goals that were set at the time the company went private, and in fact D&B met those goals ahead of schedule. During the IPO, investors recognize the transformation that has taken place and also the significant opportunities that lay ahead. The result of the significantly oversubscribed order book that created opportunity to increase the size of the offering and increase the price above the high end of the original range. For Black Knight, the outcome is an investments that is worth about $1.4 billion. In closing, as we look back on the first half of the year and prepare for the many opportunities ahead, it is clear that the core fundamentals of our business remains 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. Few businesses have the dynamic growth and margin profile that Black Knight and Optimal Blue can delivers. We are excited about the opportunities this acquisition will give us and how together we will continue to transform the industry. Thank you for your time today. Now I would like to turn the call over to Kirk for a financial update.

Kirk Larsen: Thank you, Anthony and good morning, everyone. I’m going to take the next few minutes to discuss our second quarter results and our updated outlook for the year before we open it up for Q&A. At a high level, the second quarter came in as we expected with a couple of exceptions. Origination volumes came in stronger than planned and expenses came in lower due to favorable medical costs as a result of employees and their families opting to limit hospital and doctor visits amid the COVID-19 pandemic and other favorable experiences. Overall, it was another quarter to demonstrate the resilience, visibility and predictability of our business. With that said, I will take you through the [ET] (Ph) sales and our outlook. Turning to Slide three, I will walk through our GAAP results. On a GAAP basis. Second quarter revenues were $293 million, a decline of 1% compared to the prior year quarter. Earnings before equity and losses of unconsolidated affiliates were $65 million, an increase of 44%. Net earnings were $39 million, an increase of 20%. And diluted earnings per share was $0.26, an increase of 18%. The effects of our indirect investment in D&B was a reduction of net earnings of $31 million or $0.21 per diluted share. The D&B results reflect among other things, the incremental amortization related to the application of purchase accounting, as well as other non-operating charges. Net earnings margin was 13.3%, an increase of 220 basis points compared to the prior year quarter. For the first half of the year, revenues were $584 million, an increase of 1% compared to the prior year period. Earnings before equity and losses of unconsolidated affiliates were $110 million, an increase of 30%. Net earnings were $89 million, an increase of 52% and diluted earnings per share was $0.60, the increase of 54%. The effect is the D&B investment in the first half was reduction in net earnings of $25 million, or $0.17 per diluted share. Net earnings margin was 15.3%, an increase of 520 basis points compared to the prior year period. Net earnings for the quarter and first half of 2020 include a one-time gain of $18.5 million pre-tax $14 million after tax or $0.09 per diluted share relates to the favorable resolution of legacy, lender processing services legal matter that is included in other income and expense. Turning to Slide 4, I will now discuss our adjusted results for the second quarter and first half. Second quarter adjusted revenues were $293 million, a decrease of 0.6% compared to the prior year quarter. Adjusted EBITDA was $147 million, a decrease of 0.4%. Adjusted EBITDA margin was 52.2%, an increase of 10 basis points. Adjusted net earnings were $78 million increase of 7%, reflecting lower interest expense and a lower tax rate. Adjusted earnings per share was $0.52 an increase of 6%. For the first half of 2020, adjusted revenues are $584 million increase of 1% compared to the prior year period. Adjusted EBITDA was $287 million, an increase of 1%. Adjusted EBITDA margin was 49.2%, a decrease of 10 basis points. Adjusted net earnings were $148 million increase of 6% and adjusted earnings per share was $0.99, an increase of 5%. I will mention for clarity that the one-time gain that I discussed earlier is not included in the adjusted results for the second quarter and first half of 2020. Turning now to Slide 5, I will discuss our software solutions segment results. Second quarter revenues for the Software Solution segment decreased 4% to $245 million. Our Servicing software solutions revenue declined 12.5% as a result of the previously discussed headwinds, including the effect of the foreclosure moratorium. We continue to be pleased with the underlying performance in our servicing software business, the outlook for growth as we look beyond the anomalous headwinds. In origination software solutions revenues increased 36% driven by new clients, higher refinance origination volumes and revenue from an acquired business. Second quarter EBITDA decreased 5% to $146 million, and EBITDA margin was 59.6%, decrease of 70 basis points due to the revenue decline and unfavorable mix. For the first half revenues in the software solution segments declined 2% and $490 million. EBITDA decreased 3% to $286 million, while EBITDA margin decreased 70 basis points to 58.3%. Turning to Slide 6. Second quarter revenues for the data and analytics segment increased 21% to $48 million, driven primarily by strong sales execution, higher origination volumes and revenue from an acquired business. EBITDA increase 71% to $16 million. EBITDA margin was 33.4% an increase of 970 basis points from the prior year period. First half revenues increased 19% to $94 million. EBITDA increased 69% to $31 million, while EBITDA margin was 32.6% an increase of 830 basis points. Adjusted EBITDA for the corporate segment in the second quarter in the first half was effectively flat compared to the prior year periods. Turning now to Slide 7, I will walk through our capital structure. At the end of June, we had cash and cash equivalents of $228 million. Total debt principal as of June 30th, was $1.204 billion and we had revolver remaining revolver capacity of $750 million. Our leverage ratio was 2.1 times on a gross basis and 1.7 times on net basis. Before I walk through our outlook for 2020, I will go through the details of our investments and D&B shares after their IPO. Turning now to Slide 8, following the IPO we own 54.8 million shares. The market value of this investment was $1.413 billion based on the average closing price in July of $25.76. Our total investment is $493 million, including the $100 million from the private placement in connection with the IPO. That was our pre-tax cash gain at $920 million or after-tax gain at $688 million, and the after-tax value of our D&B investments at $1.180 billion. Turning to Slide 9, I will discuss our outlook for 2020. It is important to note that the outlook we are providing does not include the effect of the Optimal Blue acquisition, we will update our outlook after we close on the transaction. Okay, now for the outlook. Revenues and adjusted revenues are expected in the range of $1.170 billion to $1.184 billion. Adjusted EBITDA is expected to be in the range of $572 million to $583 million and adjusted earnings per share is expected to be in the range of $1 94 to $1.99. Additional modeling details underlying our outlook are as follows. We expect interest expense for profit $50 million and $52 million. Depreciation and amortization expense of $137 million to $140 million, excluding the net incremental depreciation and amortization resulting for purchase accounting. And adjusted effective tax rate approximately 23% in the third and fourth quarters, excluding potential discrete tax benefits. And finally, third quarter and fourth quarter weighted average shares outstanding approximately 156 million and full-year weighted average shares outstanding of approximately 153 million. Although we do not provide quarterly guidance, we provides you with some color and how we expect to progress through the remainder of the year. Regarding revenue we expect third quarter revenues to increase sequentially from the second quarter due to a large implementation surfacing software and fourth quarter revenues are expected to be flat to the third quarter. And finally, we expect operating expenses to grow sequentially from the second quarter to third quarter with another step up in the fourth quarter due to seasonality and other investments. With that operator, please open the line for Q&A.

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Tien-Tsin Huang with JP Morgan. Please proceed with your question.

Tien-Tsin Huang: Thanks so much, and congrats on the D&B IPO a lot of work on that for sure. So let me ask on Optimal Blue if that is okay, I know you are not updating guidance here. But can you give us a little bit of help on how we might think about revenue synergies as well as integration costs for putting in the JV on once it closes?

Anthony Jabbour: Sure. Good morning, Tien-Tsin, thank you. Yes. We are obviously very excited with Optimal Blue, we think that there are a lot of opportunities there. In addition to the reasons that we are excited to acquire them they have got a really sticky network effect in their marketplace, where they bring mortgage originators and investors together. And we see a lot of cross sell opportunities in terms of up-selling some of our capabilities into their client base and present to self in those capabilities, to our client base. So, as we look at it, from that perspective, we think as you can imagine with any acquisition, you always find the obvious and then there is always hidden gems, we always look for, and we see some of those as well for the trading platform, that they have, we have been talking about that for a while adding our loans, season loans on top of that, as well as all of our data and our analytics and has tremendous insight into those loans and facilitating trading. So we see a lot of areas of revenue synergy from that perspective. And from a synergy perspective Kirk.

Kirk Larsen: Sure Tien-Tsin. Form an immigration cost perspective what I would say is, I think they will be relatively modest. I mean, if you think about what type of costs would fall in that bucket, it is going to be where there is functional overlaps, where they are, where we are doing product integration so you can imagine that they are going to integrate the Optimal Blue, PPE, tightly with Empower, which I think will create tremendous opportunity for revenue synergies as well. But I think, they will be relatively modest and just to give you a sense of scale, as well regarding the business and kind of a preview into what guidance, it look like. The business this year, we will do about 120 million of revenue and about 60 million of EBITDA. So very attractive business from a scale perspective, from a growth perspective, year-to-date, it is growing 35% in a very high subscription business, so it is almost 80% subscription. So it is really not a transactional business that will have a cyclicality that some origination businesses could have, it is very consistent with our business model, and very fast and margins in that 50% area. So it is that rare combination of business that is long-term accretive to our growth rate, it is accretive to our margins, when we are able to achieve cost synergies, which again, this is a growth play, not a cost energy play. But we have proven to be an company in the past, where we can we can grow businesses as well as make them more efficient. And those are things that we find very attractive about adding Optimal Blue to the family.

Tien-Tsin Huang: That is a great color. Thanks for sharing all that. Maybe on my follow-up, I just asked, you mentioned that new sales TCB was up double-digit. We are in a weird market obviously with rates so low and people work from home and I’m curious how the pipeline is shaping up. I would imagine a lot of the lenders, the banks are struggling with demand and struggling with detect demands, on top of their work from home remotely, all that good stuff. So can we say since last quarter that the pipeline has gotten larger and demand has gone up for outsourcing?

Anthony Jabbour: Yes, without question Tien-Tsin, you know we have seen not just double-digit growth year-over-year and strong performance in that regard. But early, I would say Q3 results and for pipeline that we see gives us real confidence that 2020 is going to be another strong sales years for us. We are excited with the momentum that we have. And again, I’m very grateful for my colleagues in the company, pushing hard through this COVID-19 pandemic working from home. But really is you look at all the results in this quarter, there is nothing at all slowing down if anything, we are getting faster and faster and what we are doing. So just excited really that our passion for our clients are focused on innovation. We are reaping the benefits of a right now. The solutions that we are driving to in this all digital mortgage world that we have been talking about many times on these calls, the pandemic has accelerated the need for them. So we are just in a great spot right now.

Tien-Tsin Huang: Great to hear thank you.

Anthony Jabbour: Yes, thank you.

Kirk Larsen: Thank you Tien-Tsin.

Operator: Our next question comes from line of John Campbell with Stephens. Please proceed with your question.

John Campbell: Hey guys good morning. Congrats in the great quarter and the recent wins and then getting Bank of America live, that is good stuff. And then I wanted to touch on Optimal Blue first just to kind of follow-up question on that. I mean, obviously, an exciting deal for you guys. But it seemed like it was a pretty sought after asset. I mean, I think ICE was there, I think Ellie Mae was there kind of both aggressively chasing that they don’t win the bid and then they pair up. So I just was curious about maybe what they were looking for on their side? And then any kind of high level thoughts on what Ellie Mae might look like now with ICE and co?

Anthony Jabbour: Well, I think in terms of what they may be looking for was Optimal Blue, I obviously, ask them that question, but I think there are some things which would be obvious that they are looking for because it is more just fact. And as Kirk said, looking at the stickiness of the solutions that they have and the complexity in terms of replicating that network effect, bringing investors and lenders together in the marketplaces is just one of those businesses which is just not technology, its technology and years of selling and implementing and creating. But also, the revenue growth that they are seeing from the margins that are demonstrating. It is hard, from my perspective, as we look at companies to buy they just weren’t many that are growing faster than us and have margins that look like ours. It is the thing that I’m really excited about it, and so I’m sure those were some of the elements there as well. And, in being, in that marketplace, the ability to drive more innovation from it, have to believe was, at the heart of what they are looking for. And from an Ellie perspective, I would say going forward with the ICE acquisition, I would say, ICE will integrate, the simplified acquisition that the mate to Ellie as they had said publicly as well as MERS. And I think, those are good moves for them to make. Form us, we have got our game plan that we have been on for a number of years here in terms of really building a digital, front to back capability in this space. And that is really what we have been doing. You know like last year at our conference, I think I updated you, we demonstrated working with kind of full digital journey, consumer working with a realtor to find a home, engaging a lender to originate the loan, then working with a servicer on the loan, all the way to capital markets. And we have got a very deep understanding of our clients and of this industry. And so the level of functionality and integration that we are pursuing across the full loan lifecycle is very comprehensive. And so, the path that we have been on in terms of executing against our game plan, is it is resonating, it is working for us, and we are pleased to see the ICE and Ellie combination as a validation of what we are doing.

John Campbell: Yes, that is very helpful. Thank you, Anthony. Kirk, and follow up for you. I know you hate these kind of questions, but I have to shoot the shot, you guys for the 2Q you have put up, north of 50% margins. The high end of your guidance for kind of what is implied in the back half, I think is roughly 49% or so percent margins? I mean, you have got Bank of America coming on, I think that is probably offset the pinning MAC loss. As long as originations aren’t kind of falling off a cliff, what explains kind of the step down in margin to back half?

Kirk Larsen: Sure, there is a couple things in the second quarter, and I mentioned this in my remarks that we had lower than expected medical costs in the first half. And I think a good chunk of that - part is just favorable experience, which is terrific. But that can be fleeting. And then the second part is that our employees and their families we are not going to doctors and hospitals for non-essential things because of COVID. And so that is not something we are planning for in the second half. And so there is the possibility we could have similar experience in the second half. But that is not what we are planning for, because it really was just so far below trends. And then I would say there certainly are investments that come with brining on a client as large as Bank of America on to the platform. And then fourth quarter is always a little unusual, because there is less cap and deferred work that goes in the balance sheet because of holidays. And there is a expense uptick on a net basis in that quarter. So that being said, John, you have known us for a very long time. We will certainly push the business as hard as we can, from a margin perspective and discipline around spending. But we also are using this opportunity to continue to invest in the business for the long-term, so that margins aren’t peaking today and then we bear the brunt of it in the future. So we will continue to push it, but those are a couple of things that we are planning for in the second half.

John Campbell: Okay. Very helpful. Thank you Kirk.

Kirk Larsen: Okay.

Operator: Our next question comes from line of Andrew Jeffrey with SunTrust Robinson Humphrey. Please proceed with your question.

Andrew Jeffrey: Thank you. good morning, the new truest securities actually, exciting times. One of the things I noticed second quarter in a row now, very strong D&A momentum. I wonder, if could elaborate a little bit on what you are seeing in that business, really three quarters in a row with some acceleration in the first half. How much of that is share shift and versus new solutions? And maybe what are some of those solutions that are allowing you to accelerate the growth in that business?

Kirk Larsen: Andrew I would unpack that growth a little different. First of all, we are obviously very pleased with 21% growth and another quarter solidly above 30%. The sales execution continues to be good. In this particular quarter, it was really from a sales perspective, it was in our public records business. So data licensing was very strong in the quarter. And then if you look at that 21%, we had our collateral analytics acquisition for a full quarter and frankly is performing above our expectations already, which is consistent with the last three acquisitions that we have done. We did benefit from volumes in the quarter, so just in my remarks, I talked about volumes being better than we expected that certainly benefited the data and analytics business in this quarter as well as the origination business, but a little bit more on the data and analytics side. And then the kind of the underlying third leg of that would be the sales execution and as I talked about that within the public records business where we saw that in this particular quarter. So we are still growing in that, it is kind of back out the other components, the underlying sales execution is driving mid-single-digits, which is, frankly, where we have been, where we would be on a sustained basis, based on our expectations. So we are pleased with our performance. The team continues to do a great job. But that is what we saw in this particular quarter.

Andrew Jeffrey: Okay. Encouraging, thank you. And then just broadly, especially given Optimal Blue and this acceleration in digitization. Do you feel like Black Knight is approaching a point where it can really begin to price to value and more explicitly quantify savings for customers and therefore maybe get a little bit of a pricing tailwind over the next few years?

Anthony Jabbour: Well, I think, those points are great ones, Andrew. In terms of, where the industry is shifting and it is certainly how we are measuring everything that we do, and it is part of the I would say the sales process that we have. So we are very much focused on value. As we are innovating, it has to drive revenue for our clients, and has to drive margin expansion or it has to drive compliance. And we are very focused and disciplined on what we are doing and how it lines up to one of those goals that our clients need. And it is part of the process that we have hold through. So if you look at from an MSP implements that as part of the sales process, we are doing a very detailed operational review. Again, we are not looking to slide in, slide out with a quick sale, we actually slow it down and go into detail with it in terms of showing what the sales or sort of what the results will be from the operational review. And we do that with really all of our solutions that we have mentioned a few calls back with Eva, for example, that having the four skills, say $437, part of the close - above the cost for origination of a loan. And so we are very focused on that as part of our natural sales motions and we are going to continue to do that Andrew. So I do feel that, more and more, we are getting a lot of great momentum here in the space, lots of ways for us to help our clients. And it is one thing to just really has all of us here really energized and excited.

Kirk Larsen: Andrew one thing I would add would be all the capabilities that we have added over the years both internal development as well as through acquisition and our origination business, we have gone from being an LOS provider with the exchange with that network. And that was the core and we keep adding capabilities. And so when we price it on a per loan basis, the price per loan that we are charging today, versus where we were before, because of all the additional capabilities is significantly higher. We have talked about more than doubling, it is probably conservative the addressable market with all these solutions we have been able to add. Certainly I think there is more room to go, as Anthony just said, but I would also say we are capturing a lot of value as we add additional capabilities.

Andrew Jeffrey: Thank you very much.

Kirk Larsen: Thanks Andrew.

Anthony Jabbour: Thanks Andrew.

Operator: Our next question comes from liner Ryan Tomasello with KBW. Please proceed with your question.

Ryan Tomasello: Good morning, everyone. Thanks for having me on the call this morning. Also wanted to ask a bit about Optimal Blue. What type of organic growth rate do you think is achievable in that business over say the next three to five years relative to that 35% I believe you mentioned. Do you think that level of growth is sustainable? And maybe some color around which products of the Optimal Blue parts are really driving that? And then on the cross sell side, perhaps you can help frame the synergy opportunity there in terms of the customer overlap? And if you think that opportunity might be accretive to that 35% growth rate they are currently achieving? Thanks.

Anthony Jabbour: Sure. Ryan, I would say looking forward, what we have model with a 20% growth rate over the next few number of years in business And the products that we see contributing to that is their product and pricing engine as a key component and that is building onto the momentum with it. We see opportunities as with their data and analytics solutions that would add to it. And like I said, some of the hidden jewels that we are pursuing right now, such as the trading platform. Form a cross sell perspective, we are excited about that. It is what we do, obviously, right is, but it is the first place that we look, it is the lowest hanging fruit in terms of us, helping our clients by integrating the next piece of adjacent solution, which will help them realize the benefit sooner. And from us, it is also the lowest hanging fruit in terms of rent revenue generation. So we are very focused obviously on the cross selling capabilities. What we are pleased with Optimal Blue was a number of things in terms of the product we have got a very strong management team, they run a great business. And we are really pleased with the state or I should say, their status in the industry. They are highly thought of and that is always critical as you want to cross sell. How are they treating their clients? Are they taking care of them? Are they doing the right things by them? Are they continuing to lead them? Those are things that we are doing at Black Knight, and we believe those lead to sales lead to trusted relationships. And they are doing the same, so that gives us confidence that we will continue to be able to cross sell into their base. Like we will be able to sell their capabilities into our client base.

Kirk Larsen: A couple things I would add Ryan would be from an overlap perspective, we have 47 empower clients and none of them use Optimal Blue’s product pricing eligibility engine. So that is one area to cross sell. They have 1,000 lenders on their PPE, that we can certainly go with, whether it is our loan origination system or other ancillary solutions in origination, we can go to that base. And so really there is a lot of whitespace there for us to try to capitalize on. And I think that just gives you a little context for the opportunity.

Ryan Tomasello: Great, that is super helpful. And then, in terms of the structure of the deal, what drove the decision to syndicate the minority interest Cannae and THL. And Kirk maybe you can give us, what where are you see pro forma leverage shaking out after the deal closes? And just broadly, your thoughts on M&A after assuming this deal gets done and how you are balancing that with leverage and integration of this acquisition?

Kirk Larsen: Sure. As you have seen over the past, frankly, since we have been public the last five years. We look at things from every angle. We look at things and for all of our stakeholders as well. And so as we were looking at this deal, and where the price ended up. Frankly, the syndicating a portion of it with Cannae and THL who are partners that we have known and worked with us for a very, very long time, partners that we know and trust and can work very well with. It really was balancing financial risk. So it really was looking at leverage and where we thought that each of our stakeholders, whether they would be our lenders, the equity markets, the rating agencies, our clients, the way everybody would look at it. We wanted to keep our leverage under four times. And so our leverage will be high threes at closing as an estimate. And we can delever very quickly go through EBITDA growth as well as through actually paying down debt. And so we can do it on a pretty - on a very accelerated basis and get back down to our target or below that target being three times. And so it really was a financial risk play. And frankly, the only reason why we are willing to do it was because we were able to bring in partners that as I said before have known a long time are very, very strong operators. And so we are actually really, really pleased to have Cannae and THL alongside us for this transaction.

Ryan Tomasello: Great. Thanks for taking the questions.

Kirk Larsen: Thank you.

Operator: [Operator Instructions]. Our next question comes from line of Ashish Sabadra with Deutsche Bank. Please proceed with your question.

Ashish Sabadra: Thanks for taking my question and congrats on a good quarter the D&B IPO as well as the Optimal Blue acquisition. Just on the digital mortgages thanks Antony for providing on the close and lost indication. I was wondering as you think about end-to-end. I was wondering if you can comment on the digital POS as well. And are there more opportunities to enhance the digitization of mortgage origination? Thanks.

Anthony Jabbour: Sure, yes, we think that there is, and there are continue to be more and more capabilities that we can bring to market to help streamline the process. And to your questions specifically on the digital point of sale, I will just give you some color on what Optimal Blue blueprint bring to that part of the solution. So now, imagine you are applying for a loan or for point of sale, with Optimal Blue having access to the product and pricing capabilities. We can pull forward what your rate is. So now as you are applying for a mortgage, being able to present you with what your exact rate is, that we are pulling straight from that database. And at the same time, from our own Ernst acquisitions pulling the exact fees from what you will pay its actually close on the loan. So, right up front before you start applying, what your total cost would be and what the rate would be. It is powerful and as we keep looking at ways to create a more compelling value proposition and drive momentum in the space, this is the type of capability that we are really excited about you know we think could really differentiate.

Ashish Sabadra: That is a helpful color. And Kirk maybe just a quick clarification on the origination business. I was wondering if you can help parse how much of the growth came from the refinancing volume acquisition and the growth in the underlying business? Thanks.

Kirk Larsen: Sure. The benefit of refi was about a million dollars in origination, and it was up and the acquisition added a couple points of growth to the total company for the quarter.

Ashish Sabadra: That is very helpful. Congrats once again. Thanks.

Kirk Larsen: Thank you Ashish.

Anthony Jabbour: Thanks.

Operator: Our next question comes from line of Jake Williams with Wells Fargo. Please proceed with your question.

Jake Williams: Good morning, everyone.

Anthony Jabbour: Good morning.

Kirk Larsen: Good morning.

Jake Williams: Quick question on the step up in expenses related to the Bank of America going live? Can we expect those to tickler off some? Or would that be kind of a steady run rate just with maintaining that relationship?

Kirk Larsen: That will be - you noticed for costs. And so that is an ongoing cost as we bring the client on. We already talked about there being very high incremental margins when we bring, a client on, but they certainly are infinite. And so there is an element of computing costs. There is known element of support costs that goes with that client, particularly when we are talking about clients as the single largest conversion of servicing clients in the last decade. So we are certainly thrilled to have them on but everything about the cost structure certainly is a cost to support.

Jake Williams: Got it. Very helpful. Thank you.

Anthony Jabbour: Thanks Jake.

Operator: Our next question comes from line of Stephen Sheldon with William Blair. Please proceed with your question.

Stephen Sheldon: Thanks. Good morning. First any update on how meaningful from the new product against your financial growth so far this year between service and digital AIP, AIVA, any others that are worth calling out? And have these really started to move the revenue needle so far in this year? And additionally I guess in AIVA how are you thinking about expanding capabilities there to drive origination costs down even more?

Kirk Larsen: Sure. I will start, Stephen. First with the contribution from innovation. So we talked about on an ongoing basis that driving 1% to 2% of revenue growth per year kind of an aggregate for recently innovated solutions. I would say in the first half we aren’t getting to that 1% nor do we expect to, I think that was considered more of a long-term guideposts, a 1% to 2%. So we are probably between 0.5 point and a point of our growth this quarter was from recently innovated solutions?

Anthony Jabbour: Yes, the only thing I would add to that as well is. A lot of these innovations are helping drive other products. You know so last year with MSP, we signed nine new clients, it was the best sales here, I think since 2013. And so far, like for this year, we have signed four of them. So there is also this inherent value that this innovation brings as we are selling all of our platform products as well. But I just didn’t want to be lost in this. A second for your question, Steven on AIVA. We are continuing to build up the skills, so that we can continue to help lower the costs of origination for our clients. And, again, the team has got great focused on this, great momentum and great partnership with many of our clients working with us. Feeding us more and more of their loan documents for AIVA continue to learn more, more different forms across different parts of the country, which will obviously once it learns it helps in the automation process.

StephenSheldon: Got it. That helps. And then I guess an Optimal Blue wanted to ask you some more about how quickly you can start to realize some of the cross selling opportunities after the close. Sounds like there could be some integration needed on the product and database side, but maybe not overly burdensome. So would you be able to hit the ground running on some of the cross selling and go to market efforts pretty quickly after it closes?

Anthony Jabbour: No, we definitely will hit the ground running like we always do with acquisitions. And I have had a couple of clients reach out to me that, so they were going to come on, once they heard of us acquiring Optimal Blue and obviously we have ever trusted relationships with our clients. And so I expect that we will certainly hit the ground running from that perspective, from an integration perspective. It will take us probably good parts of the rest of this year to really integrate it to the level that our client expects of us. And very detailed, comprehensive, but we will certainly hit the ground running once we close on the sale side.

Stephen Sheldon: Great. Thank you.

Anthony Jabbour: Thank you Steve.

Kirk Larsen: Thank you Stephen.

Operator: Our next question comes from line of Kevin Kaczmarek with Zelman. Please proceed with your question.

Kevin Kaczmarek: Hey guys, on Optimal Blue, you mentioned it gives you the capability for borrowers to know the exact rate and fee for potential mortgage. I guess what are the pieces missing that could allow Black Knight to enable MSP and Empower clients to get the time and cost of processing say a refi. Don’t start was perhaps the angle of being something along the timeline of an auto loan, where it is something like hours and instead of weeks. What are the bigger pieces that are missing there?

Anthony Jabbour: Well, a lot of parts in the process and from the origination perspective, Kevin, is on the stare and compares. So still having documents to prove what you said in your application is true. That takes a long part of the process and certainly a lot of the work that we are doing with AIVA is to help us in that regard streamline that automate that. So if you are to apply for a mortgage from your mobile device and you take pictures of these documents, AIVA recognizing them on the fly, being able extract data on the fly, and really streamlining that process getting back to you, if one of the forms you sent was an incorrect from. For example, if you sent two bank statements, two of the same bank statements versus a sequential months. So in a lot of times in that process, that is where there is typically a lot of a breakdown. It is getting back to consumers on the loans, questions on the document, I should say. And so being able to really do all that right up front, we think is probably one of the biggest savings that you will find in streamlining now the mortgage process. So, we have got strong eClose capabilities. Right now we continue to build that we are launching a guided closed capability, we are fidelity National Financial, the industry’s largest, settlement agents. And so, we think that part, obviously will help, there is a lot of parts that can help but the biggest is really from a document perspective, the is ability to get it quickly, recognize it right away, extract the data and pop it into your workflow, which -. Again, we always talk about ancillary systems. I always want to bring everyone back to the actual loan origination system itself that we have with Empower is world-class in terms of how it is so automated and like processing and just really drives out exceptions. We kind of take that for granted, but we shouldn’t. I mean, as you get into the details, that is where the differentiation really occurs. And that is what we see being able to help streamline the process as well.

Kevin Kaczmarek: Okay, thank you. That is very helpful. And then one quick, one on the forward guidance, given the timing of Bank of America. Although FICO would expect an uptick in the fourth quarter, because you came on the quarter in the third quarter, so I guess what is offsetting that in the fourth quarter? I think you mentioned a downtick in services revenue. Is there something else there as well and is that correct?

Kirk Larsen: No, that is exactly right. Kevin, fourth quarter always has less professional services just because of holidays and the like, we are planning it as if it is a typical year. We are not adjusting anything because of COVID or that any behavior would be differently. So we are assuming that there will be vacations and holidays and the like and shutdown such that professional services will be lower in Q4 versus Q3.

Kevin Kaczmarek: Okay, great, thank you. That is all I had.

Anthony Jabbour: Thanks Kevin.

Operator: [Operator Instructions] Thank you. It appears we have no further questions at this time. Mr. Jabbour. I would now like to turn the floor back over to you for closing comments.

Anthony Jabbour: Wonderful, thank you. Despite this unprecedented environment, our new sales, client renewals, implementations and ability to deliver innovative solutions has not wavered, which further demonstrates our talented team members ability to rise to any challenge. I would like to thank our clients for their strong partnerships, and my Black Knight colleagues for their exceptional efforts. Thank you for joining us on the call today and for your interest in our great Company.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.