Black Knight Financial Services Reports Third Quarter 2015 Financial Results

JACKSONVILLE, Fla., Oct. 27, 2015 /PRNewswire/ -- Black Knight Financial Services, Inc. (NYSE: BKFS), a leading provider of technology, data and analytics solutions to the nation's leading mortgage lenders and servicers, today announced financial results for the third quarter and for the nine months ended September 30, 2015. 

GAAP revenues for the third quarter of 2015 increased 9% to $233.6 million from $215.0 million in the prior year quarter. GAAP net earnings from continuing operations were $29.8 million compared to a loss of $0.2 million in the prior year quarter. The results for the third quarter of 2014 included $8.1 million of transition and integration costs as well as $3.0 million in certain legal charges related to the acquisition of Lender Processing Services, Inc. by Fidelity National Financial, Inc. GAAP net earnings from continuing operations per diluted share for the third quarter of 2015 was $0.15 per share.

Non-GAAP Adjusted Revenues for the third quarter of 2015 increased 9% to $236.0 million from $217.4 million in the prior year quarter. Adjusted EBITDA increased 11% to $105.5 million from $94.7 million in the prior year quarter. Adjusted EBITDA Margin of 44.7% increased 110 basis points compared to 43.6% in the prior year quarter. Adjusted Net Earnings from Continuing Operations increased 13% to $38.9 million, or $0.25 per diluted share, compared to Pro Forma Adjusted Net Earnings from Continuing Operations of $34.3 million in the prior year quarter.

Commenting on the results, Bill Foley, executive chairman of Black Knight, said, "Our third quarter results reflect continued strength in the fundamental drivers of long-term growth, as we continue to execute on our strategic initiatives. Black Knight's increasing momentum has been the result of creating and expanding opportunities in our markets and capitalizing on the strength of our business model. We are on course to achieve the financial targets we have set for 2015."

Tom Sanzone, president and chief executive officer of Black Knight added, "We are pleased to report strong third quarter financial results. Adjusted Revenues grew 9% year over year, as we continued to win market share and capitalize on the opportunities generated by the secular tailwinds in the U.S. mortgage industry. Through a combination of strong revenue growth and operational efficiency, we achieved margin expansion of 110 basis points."

GAAP revenues for the nine months ended September 30, 2015, increased 10% to $692.9 million from $631.8 million in the prior year period. GAAP net earnings from continuing operations increased to $52.3 million from a loss of $114.5 million in the prior year period. The results for the nine months ended September 30, 2015 include $18.4 million of costs primarily associated with the initial public offering, the refinancing and a charge resulting from the vesting of certain equity-based awards in connection with the initial public offering. The results for the nine months ended September 30, 2014, include $111.0 million of transition and integration costs as well as $11.0 million in certain legal charges related to the acquisition of Lender Processing Services, Inc. by Fidelity National Financial, Inc.

Non-GAAP Adjusted Revenues for the nine months ended September 30, 2015, increased 9% to $700.3 million from $642.2 million in the prior year period. Adjusted EBITDA increased 20% to $305.8 million from $255.0 million in the prior year period. Adjusted EBITDA Margin of 43.7% increased 400 basis points as compared to 39.7% in the prior year period. Pro Forma Adjusted Net Earnings from Continuing Operations increased 32% to $111.0 million from $83.8 million in the prior year period.

Definitions of non-GAAP and pro forma financial measures and the reconciliations to related GAAP measures are provided in subsequent sections of the press release narrative and supplemental schedules.

Segment Information

Technology

Adjusted Revenues for the third quarter of 2015 increased 6% to $192.5 million from $181.0 million in the prior year quarter. Our servicing technology business had Adjusted Revenues growth of 6%, driven by higher loan counts on our servicing platform and increased communication and usage fees. In our origination technology business, Adjusted Revenues growth of 10% was driven by increased professional services and processing revenues from loan origination systems clients that more than offset termination fees in the third quarter of 2014. Adjusted EBITDA increased 9% to $108.4 million, while Adjusted EBITDA Margin was 56.3%, an increase of 130 basis points compared to 55.0% in the prior year quarter.

Adjusted Revenues for the nine months ended September 30, 2015, increased 7% to $568.2 million from $528.9 million in the prior year period. Adjusted Revenues growth was 4% in our servicing technology business, driven by higher loan counts as well as increased usage and communication fees. In our origination technology business, Adjusted Revenues growth of 27% was driven by increased professional services and processing revenues from loan origination systems clients and revenue recognition from a large Closing Insight client. Adjusted EBITDA increased 15% to $314.2 million, while Adjusted EBITDA Margin was 55.3%, an increase of 360 basis points compared to 51.7% in the prior year period.

Data and Analytics

Adjusted Revenues for the third quarter of 2015 increased 20% to $43.5 million from $36.4 million in the prior year quarter, primarily driven by revenues from long-term strategic data deals. Adjusted EBITDA increased 90% to $7.4 million, while Adjusted EBITDA Margin was 17.0%, an increase of 630 basis points compared to 10.7% in the prior year period.

Adjusted Revenues for the nine months ended September 30, 2015, increased 17% to $132.0 million from $113.3 million in the prior year period, primarily driven by revenues from long-term strategic data deals. Adjusted EBITDA increased 272% to $21.6 million, while Adjusted EBITDA Margin was 16.4%, an increase of 1,130 basis points compared to 5.1% in the prior year period. 

Corporate/Other

Adjusted corporate expenses for the third quarter of 2015, excluding depreciation and amortization and interest expense, increased $1.6 million from the prior year quarter. The increase was driven by higher incentive bonus accruals, the addition of public company costs and professional fees. Corporate expenses for the nine months ended September 30, 2015, increased $6.1 million from the same period in the prior year. The increase was driven by higher incentive bonus accruals, the addition of public company costs, professional fees, severance expenses related to cost-reduction efforts and a one-time tax incentive rebate in 2014.

Balance Sheet

At September 30, 2015, Black Knight had cash and cash equivalents of $129.0 million and debt of $1,671.7 million. As of September 30, 2015, Black Knight had available capacity on its revolving credit facility of $300.0 million.

Business Outlook

The following forward-looking statements reflect Black Knight's expectations as of today's date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. Black Knight does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publicly available statements.

The Company's updated second half 2015 outlook is as follows:

• Adjusted Revenues growth is expected to be towards the high end of the previous outlook range of 6.5% to 8.0%
• Adjusted EBITDA is expected to be in a range of $210.0 million to $213.0 million
• Adjusted Net Earnings Per Share from Continuing Operations is expected to be in a range of $0.49 to $0.51

Earnings Conference Call and Audio Webcast

The Company will host a conference call to discuss the third quarter 2015 financial results on October 27, 2015, at 5:00 p.m. ET. The conference call can be accessed live over the phone by dialing (877) 407-4018, or for international callers (201) 689-8471. A replay will be available from 8:00 p.m. ET on October 27, 2015, through November 3, 2015, and can be accessed by dialing (877) 870-5176, or for international callers (858) 384-5517, and entering replay passcode 13621484. The call will also be webcast live from the Company's investor relations website at http://investor.bkfs.com. Following completion of the call, a recorded replay of the webcast will be available on the website.

About Black Knight Financial Services, Inc.

Black Knight (NYSE: BKFS), a Fidelity National Financial (NYSE:FNF) company, is the mortgage and finance industries' leading provider of integrated technology, data and analytics solutions that facilitate and automate many of the business processes across the mortgage lifecycle.

Black Knight is committed to being the premier business partner that lenders and servicers rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class technology, services and insight with a relentless commitment to excellence, innovation, integrity and leadership. For more information on Black Knight, please visit www.bkfs.com.

Non-GAAP and Pro Forma Financial Measures

This earnings release presents non-GAAP and pro forma financial information including Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings from Continuing Operations, Pro Forma Adjusted Net Earnings from Continuing Operations and Adjusted Net Earnings Per Share from Continuing Operations. These are important financial performance measures for the Company, but are not financial measures as defined by GAAP. The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP and pro forma financial performance measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. Reconciliations of these measures to the most directly comparable GAAP financial measures are presented in the attached schedules.

Adjusted Revenues - We define Adjusted Revenues as reported revenues adjusted to include the revenues that were not recorded by the Company during the period presented due to the deferred revenue purchase accounting adjustment recorded in accordance with GAAP.

Adjusted EBITDA - We define Adjusted EBITDA as operating income (loss) before depreciation and amortization, with further adjustments to reflect the addition or elimination of certain income statement items including, but not limited to, (i) the deferred revenue purchase accounting adjustment recorded in accordance with GAAP; (ii) equity-based compensation; (iii) acquisition-related costs; (iv) non-recurring costs associated with the achievement of synergies; (v) charges associated with material legal and regulatory matters; (vi) member management fees paid to FNF and THL Managers, LLC; (vii) exit costs, impairments and other charges; (viii) one-time costs associated with the initial public offering; and (ix) other significant, non-recurring items.

Adjusted EBITDA Margin - Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Adjusted Revenues.

Adjusted Net Earnings from Continuing Operations and Pro Forma Adjusted Net Earnings from Continuing Operations - We define Adjusted Net Earnings from Continuing Operations as earnings (loss) from continuing operations before income taxes with adjustments to reflect the addition or elimination of certain income statement items including, but not limited to, (i) adjustments to calculate Adjusted EBITDA as described above; (ii) adjustment for the net incremental depreciation and amortization adjustments associated with the application of purchase accounting; (iii) non-recurring items in Other expense, net; (iv) adjustment for income tax expense at our estimated effective tax rate, excluding noncontrolling interests; and (v) assume the exchange of all the outstanding shares of our Class B common stock into shares of our Class A common stock, which eliminates the noncontrolling interests in Black Knight. For periods that include the results of operations prior to the third quarter of 2015, Pro Forma Adjusted Net Earnings from Continuing Operations would further include pro forma adjustments to present interest expense as if the amount of debt outstanding and applicable interest rates as a result of the debt refinancing were consistent for all periods.

Adjusted Net Earnings Per Share from Continuing Operations - We calculate Adjusted Net Earnings Per Share from Continuing Operations using Adjusted Net Earnings from Continuing Operations and assuming the exchange of all shares of Class B common stock into shares of our Class A common stock at the beginning of the respective period, as well as the dilutive effect of any unvested restricted Class A common shares.

Forward-Looking Statements

This press release contains forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements regarding expectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on Black Knight management's beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Black Knight undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties that forward-looking statements are subject to include, but are not limited to: electronic security breaches against our information systems; our ability to maintain and grow our relationships with our customers; changes to the laws, rules and regulations that impact our and our customers' businesses; our ability to adapt our services to changes in technology or the marketplace; the impact of any potential defects, development delays, installation difficulties or system failures on our business and reputation; changes in general economic, business, regulatory and political conditions, particularly as they impact the mortgage industry; risks associated with the availability of data; the effects of our substantial leverage on our ability to make acquisitions and invest in our business; risks associated with our structure and status as a "controlled company;" and other risks and uncertainties detailed in the "Cautionary Note Regarding Forward-Looking Statements," "Risk Factors" and other sections of our Registration Statement on Form S-1 and other filings with the Securities and Exchange Commission.