UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2022
OR
Commission File Number 001-37394
Black Knight, Inc.
______________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
(904) 854-5100
___________________________________________________________________
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
There were 156,025,027 shares outstanding of the Registrant’s common stock as of August 3, 2022.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 2022
TABLE OF CONTENTS
i
Part I: FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements (Unaudited)
BLACK KNIGHT, INC.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
June 30, 2022 | December 31, 2021 | |||||
ASSETS | ||||||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | 38.0 | $ | 77.1 | ||
Trade receivables, net |
| 203.2 |
| 191.8 | ||
Prepaid expenses and other current assets |
| 97.7 |
| 83.0 | ||
Receivables from related parties |
| 6.1 |
| 0.2 | ||
Total current assets |
| 345.0 |
| 352.1 | ||
Property and equipment, net |
| 146.6 |
| 154.5 | ||
Software, net |
| 469.6 |
| 497.0 | ||
Other intangible assets, net |
| 539.6 |
| 613.2 | ||
Goodwill |
| 3,817.1 |
| 3,817.3 | ||
Investments in unconsolidated affiliates |
| 171.4 |
| 490.5 | ||
Deferred contract costs, net |
| 198.0 |
| 196.0 | ||
Other non-current assets |
| 241.2 |
| 230.3 | ||
Total assets | $ | 5,928.5 | $ | 6,350.9 | ||
LIABILITIES AND EQUITY |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Trade accounts payable and other accrued liabilities | $ | 59.8 | $ | 64.5 | ||
Income taxes payable | 46.8 | 11.8 | ||||
Accrued compensation and benefits |
| 75.4 |
| 91.4 | ||
Current portion of debt |
| 33.6 |
| 32.5 | ||
Deferred revenues |
| 68.8 |
| 64.6 | ||
Total current liabilities |
| 284.4 |
| 264.8 | ||
Deferred revenues |
| 62.0 |
| 81.5 | ||
Deferred income taxes |
| 241.3 |
| 284.1 | ||
Long-term debt, net of current portion |
| 2,736.7 |
| 2,362.6 | ||
Other non-current liabilities |
| 56.6 |
| 78.7 | ||
Total liabilities |
| 3,381.0 |
| 3,071.7 | ||
Commitments and contingencies (Note 10) |
|
|
|
| ||
Redeemable noncontrolling interests |
| 47.4 |
| 1,188.8 | ||
Equity: |
|
|
|
| ||
Common stock; $0.0001 par value; 550,000,000 shares authorized; 160,040,598 shares issued and 156,031,830 shares outstanding as of June 30, 2022, and 160,040,598 shares issued and 155,357,705 shares outstanding as of December 31, 2021 |
| — |
| — | ||
Preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of June 30, 2022 and December 31, 2021 |
| — |
| — | ||
Additional paid-in capital |
| 1,367.8 |
| 1,410.9 | ||
Retained earnings |
| 1,368.2 |
| 968.2 | ||
Accumulated other comprehensive loss |
| (5.5) |
| (17.5) | ||
Treasury stock, at cost, 4,008,768 shares as of June 30, 2022 and 4,682,893 shares as of December 31, 2021 |
| (230.4) |
| (271.2) | ||
Total shareholders’ equity |
| 2,500.1 |
| 2,090.4 | ||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 5,928.5 | $ | 6,350.9 | ||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
1
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(In millions, except per share data)
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenues | $ | 394.5 | $ | 361.3 | $ | 781.7 | $ | 711.0 | ||||
Expenses: |
|
|
|
|
|
|
| |||||
Operating expenses |
| 216.8 | 197.0 |
| 424.7 |
| 383.2 | |||||
Depreciation and amortization |
| 92.5 | 90.4 |
| 184.0 |
| 178.2 | |||||
Transition and integration costs |
| 8.2 | 4.3 |
| 15.8 |
| 12.2 | |||||
Total expenses |
| 317.5 |
| 291.7 |
| 624.5 |
| 573.6 | ||||
Operating income |
| 77.0 |
| 69.6 |
| 157.2 |
| 137.4 | ||||
Other income and expense: |
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| (22.6) | (20.9) |
| (43.7) |
| (41.2) | |||||
Other expense, net |
| (2.4) | (1.0) |
| (3.6) |
| (4.2) | |||||
Total other expense, net |
| (25.0) |
| (21.9) |
| (47.3) |
| (45.4) | ||||
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates |
| 52.0 |
| 47.7 |
| 109.9 |
| 92.0 | ||||
Income tax expense |
| 11.6 | 10.5 | 10.5 |
| 15.7 | ||||||
Earnings before equity in (losses) earnings of unconsolidated affiliates |
| 40.4 |
| 37.2 |
| 99.4 |
| 76.3 | ||||
Equity in (losses) earnings of unconsolidated affiliates, net of tax |
| (0.1) | (5.0) |
| 303.0 |
| 1.4 | |||||
Net earnings |
| 40.3 |
| 32.2 |
| 402.4 |
| 77.7 | ||||
Net losses attributable to redeemable noncontrolling interests |
| — | 7.5 |
| 2.5 |
| 16.1 | |||||
Net earnings attributable to Black Knight | $ | 40.3 | $ | 39.7 | $ | 404.9 | $ | 93.8 | ||||
Other comprehensive earnings (loss): |
|
|
|
|
|
|
|
| ||||
Unrealized holding gains (losses), net of tax(1) |
| 2.3 | (0.2) | 6.6 | 0.3 | |||||||
Reclassification adjustments for losses included in net earnings, net of tax(2) |
| 2.0 | 4.0 | 5.2 | 7.9 | |||||||
Total unrealized gains on interest rate swaps, net of tax |
| 4.3 |
| 3.8 |
| 11.8 |
| 8.2 | ||||
Foreign currency translation adjustment, net of tax (3) |
| (0.4) | (0.1) | (0.6) | (0.4) | |||||||
Unrealized (losses) gains on investments in unconsolidated affiliates, net of tax(4) |
| (2.4) | 1.5 | 0.8 | (1.6) | |||||||
Other comprehensive earnings |
| 1.5 |
| 5.2 |
| 12.0 |
| 6.2 | ||||
Comprehensive earnings |
| 41.8 |
| 37.4 |
| 414.4 |
| 83.9 | ||||
Net losses attributable to redeemable noncontrolling interests |
| — | 7.5 |
| 2.5 |
| 16.1 | |||||
Comprehensive earnings attributable to Black Knight | $ | 41.8 | $ | 44.9 | $ | 416.9 | $ | 100.0 | ||||
Net earnings per share attributable to Black Knight common shareholders: |
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.26 | $ | 0.26 | $ | 2.62 | $ | 0.60 | ||||
Diluted | $ | 0.26 | $ | 0.25 | $ | 2.60 | $ | 0.60 | ||||
Weighted average shares of common stock outstanding (see Note 5): |
|
|
|
|
| |||||||
Basic |
| 154.5 |
| 155.4 |
| 154.4 |
| 155.5 | ||||
Diluted |
| 155.6 |
| 155.7 |
| 155.5 |
| 155.8 | ||||
| (1) | Net of income tax expense of $0.9 million and income tax benefit of $0.1 million for the three months ended June 30, 2022 and 2021, respectively, and income tax expense of $2.3 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively. |
| (2) | Amounts reclassified to net earnings relate to losses on interest rate swaps and are included in Interest expense, net above. Amounts are net of income tax benefit of $0.7 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively, and $1.8 million and $2.7 million for the six months ended June 30, 2022 and 2021, respectively. |
| (3) | Net of income tax benefit of $0.2 million for the three and six months ended June 30, 2022 and less than $0.1 million for the three and six months ended June 30, 2021. |
| (4) | Net of income tax benefit of $0.8 million and income tax expense of $0.5 million for the three months ended June 30, 2022 and 2021, respectively, and income tax expense of $0.3 million and income tax benefit $0.5 million for the six months ended June 30, 2022 and 2021, respectively. |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
2
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Equity
(In millions)
(Unaudited)
Three months ended June 30, 2022 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Additional | other | Total | Redeemable | ||||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | noncontrolling | |||||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | ||||||||
Balance, March 31, 2022 |
| 160.0 | $ | — | $ | 1,364.8 | $ | 1,327.4 | $ | (7.0) |
| 4.1 | $ | (234.2) | $ | 2,451.0 | $ | 40.2 | |||||||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — |
| — |
| (7.2) |
| — |
| — |
| — |
| — |
| (7.2) |
| 7.2 | |||||||
Grant of restricted shares of common stock |
| — |
| — |
| (4.2) |
| — |
| — |
| (0.1) |
| 4.2 |
| — |
| — | |||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.2 |
| — |
| — |
| — |
| (0.2) |
| — |
| — | |||||||
Tax withholding payments for restricted share vesting |
| — |
| — |
| (0.3) |
| — |
| — |
| — |
| — |
| (0.3) |
| — | |||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 0.2 |
| — |
| — |
| — |
| (0.2) |
| — |
| — | |||||||
Equity-based compensation expense |
| — |
| — |
| 12.9 |
| — |
| — |
| — |
| — |
| 12.9 |
| — | |||||||
Net earnings |
| — |
| — |
| — |
| 40.3 |
| — |
| — |
| — |
| 40.3 |
| — | |||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 0.5 |
| — |
| — |
| — |
| 0.5 |
| — | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.4) |
| — |
| — |
| (0.4) |
| — | |||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 4.3 |
| — |
| — |
| 4.3 |
| — | |||||||
Other comprehensive loss on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| (2.4) |
| — |
| — |
| (2.4) |
| — | |||||||
Other | — | — | 1.4 | — | — | — | — | 1.4 | — | ||||||||||||||||
Balance, June 30, 2022 |
| 160.0 | $ | — | $ | 1,367.8 | $ | 1,368.2 | $ | (5.5) |
| 4.0 | $ | (230.4) | $ | 2,500.1 | $ | 47.4 | |||||||
Three months ended June 30, 2021 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Additional | other | Total | Redeemable | ||||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | noncontrolling | |||||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | ||||||||
Balance, March 31, 2021 |
| 160.0 | $ | — | $ | 2,017.0 | $ | 812.0 | $ | (37.8) |
| 3.4 | $ | (176.5) | $ | 2,614.7 | $ | 578.0 | |||||||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC | — | — | (7.5) | — | — | — | — | (7.5) | 7.5 | ||||||||||||||||
Grant of restricted shares of common stock |
| — |
| — |
| (1.3) |
| — |
| — |
| — |
| 1.3 |
| — |
| — | |||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.4 |
| — |
| — |
| — |
| (0.4) |
| — |
| — | |||||||
Tax withholding payments for restricted share vesting |
| — |
| — |
| (1.7) |
| — |
| — |
| — |
| — |
| (1.7) |
| — | |||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 1.0 |
| — |
| — |
| — |
| (1.0) |
| — |
| — | |||||||
Equity-based compensation expense |
| — |
| — |
| 13.1 |
| — |
| — |
| — |
| — |
| 13.1 |
| — | |||||||
Net earnings (losses) |
| — |
| — |
| — |
| 39.7 |
| — |
| — |
| — |
| 39.7 |
| (7.5) | |||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 0.7 |
| — |
| — |
| — |
| 0.7 |
| — | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.1) |
| — |
| — |
| (0.1) |
| — | |||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 3.8 |
| — |
| — |
| 3.8 |
| — | |||||||
Other comprehensive gains on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| 1.5 |
| — |
| — |
| 1.5 |
| — | |||||||
Balance, June 30, 2021 |
| 160.0 | $ | — | $ | 2,021.0 | $ | 852.4 | $ | (32.6) |
| 3.4 | $ | (176.6) | $ | 2,664.2 | $ | 578.0 | |||||||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Equity
(In millions)
(Unaudited)
Six months ended June 30, 2022 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Additional | other | Total | Redeemable | ||||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | noncontrolling | |||||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | ||||||||
Balance, December 31, 2021 |
| 160.0 | $ | — | $ | 1,410.9 | $ | 968.2 | $ | (17.5) |
| 4.7 | $ | (271.2) | $ | 2,090.4 | $ | 1,188.8 | |||||||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — |
| — |
| (17.1) |
| — |
| — |
| — |
| — |
| (17.1) |
| 17.1 | |||||||
Acquisition of remaining redeemable noncontrolling interests in Optimal Blue Holdco, LLC | — | — | — | — | — | — | — | — | (1,156.0) | ||||||||||||||||
Grant of restricted shares of common stock |
| — |
| — |
| (50.8) |
| — |
| — |
| (0.9) |
| 50.8 |
| — |
| — | |||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 1.2 |
| — |
| — |
| — |
| (1.2) |
| — |
| — | |||||||
Tax withholding payments for restricted share vesting |
| — |
| — |
| (11.0) |
| — |
| — |
| — |
| — |
| (11.0) |
| — | |||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 8.8 |
| — |
| — |
| 0.2 |
| (8.8) |
| — |
| — | |||||||
Equity-based compensation expense |
| — |
| — |
| 23.6 |
| — |
| — |
| — |
| — |
| 23.6 |
| — | |||||||
Net earnings (losses) |
| — |
| — |
| — |
| 404.9 |
| — |
| — |
| — |
| 404.9 |
| (2.5) | |||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| (4.9) |
| — |
| — |
| — |
| (4.9) |
| — | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.6) |
| — |
| — |
| (0.6) |
| — | |||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 11.8 |
| — |
| — |
| 11.8 |
| — | |||||||
Other comprehensive gains on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| 0.8 |
| — |
| — |
| 0.8 |
| — | |||||||
Other | — | — | 2.2 | — | — | — | — | 2.2 | — | ||||||||||||||||
Balance, June 30, 2022 |
| 160.0 | $ | — | $ | 1,367.8 | $ | 1,368.2 | $ | (5.5) |
| 4.0 | $ | (230.4) | $ | 2,500.1 | $ | 47.4 | |||||||
Six months ended June 30, 2021 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Additional | other | Total | Redeemable | ||||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | noncontrolling | |||||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | ||||||||
Balance, December 31, 2020 |
| 160.1 | $ | — | $ | 2,053.7 | $ | 757.4 | $ | (38.8) |
| 3.1 | $ | (144.6) | $ | 2,627.7 | $ | 578.0 | |||||||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC | — | — | (16.1) | — | — | — | — | (16.1) | 16.1 | ||||||||||||||||
Grant of restricted shares of common stock |
| — |
| — |
| (26.6) |
| — |
| — |
| (0.5) |
| 26.6 |
| — |
| — | |||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.5 |
| — |
| — |
| — |
| (0.5) |
| — |
| — | |||||||
Tax withholding payments for restricted share vesting |
| (0.1) |
| — |
| (24.4) |
| — |
| — |
| — |
| — |
| (24.4) |
| — | |||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 11.4 |
| — |
| — |
| 0.2 |
| (11.4) |
| — |
| — | |||||||
Equity-based compensation expense |
| — |
| — |
| 22.5 |
| — |
| — |
| — |
| — |
| 22.5 |
| — | |||||||
Net earnings (losses) |
| — |
| — |
| — |
| 93.8 |
| — |
| — |
| — |
| 93.8 |
| (16.1) | |||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 1.2 |
| — |
| — |
| — |
| 1.2 |
| — | |||||||
Purchases of treasury stock |
| — |
| — |
| — |
| — |
| — |
| 0.6 |
| (46.7) |
| (46.7) |
| — | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.4) |
| — |
| — |
| (0.4) |
| — | |||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 8.2 |
| — |
| — |
| 8.2 |
| — | |||||||
Other comprehensive loss on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| (1.6) |
| — |
| — |
| (1.6) |
| — | |||||||
Balance, June 30, 2021 |
| 160.0 | $ | — | $ | 2,021.0 | $ | 852.4 | $ | (32.6) |
| 3.4 | $ | (176.6) | $ | 2,664.2 | $ | 578.0 | |||||||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Six months ended June 30, | |||||
2022 | 2021 | |||||
Cash flows from operating activities: |
|
| ||||
Net earnings | $ | 402.4 | $ | 77.7 | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
| ||||
Depreciation and amortization |
| 184.0 | 178.2 | |||
Amortization of debt issuance costs and original issue discount |
| 1.9 | 2.0 | |||
Loss on extinguishment of debt | — | 2.5 | ||||
Deferred income taxes, net |
| (144.9) | (3.9) | |||
Equity in earnings of unconsolidated affiliates, net of tax |
| (303.0) | (1.4) | |||
Equity-based compensation |
| 23.6 | 22.5 | |||
Changes in assets and liabilities, net of acquired assets and liabilities: |
| |||||
Trade receivables, including receivables from related parties |
| (17.4) | (10.7) | |||
Prepaid expenses and other assets |
| (28.1) | (36.8) | |||
Deferred contract costs |
| (21.7) | (24.1) | |||
Deferred revenues |
| (15.3) | 6.4 | |||
Trade accounts payable and other liabilities |
| 8.3 | (13.2) | |||
Net cash provided by operating activities |
| 89.8 | 199.2 | |||
Cash flows from investing activities: |
|
|
| |||
Additions to property and equipment |
| (11.8) | (11.5) | |||
Additions to software |
| (43.7) | (45.4) | |||
Business acquisitions, net of cash acquired |
| — | (48.3) | |||
Asset acquisitions |
| — | (10.0) | |||
Other investing activities | (4.0) | (1.2) | ||||
Net cash used in investing activities |
| (59.5) | (116.4) | |||
Cash flows from financing activities: |
|
|
| |||
Revolver borrowings |
| 585.8 | 260.3 | |||
Revolver payments |
| (195.1) | (210.0) | |||
Term loan borrowings | — | 1.6 | ||||
Term loan payments |
| (14.4) | — | |||
Payments made for redeemable noncontrolling interests |
| (433.5) | — | |||
Purchases of treasury stock |
| — | (46.7) | |||
Tax withholding payments for restricted share vesting |
| (11.0) | (24.4) | |||
Finance lease payments |
| (0.8) | (2.0) | |||
Debt issuance costs paid |
| — | (7.6) | |||
Other financing activities |
| (0.4) | — | |||
Net cash used in financing activities |
| (69.4) | (28.8) | |||
Net (decrease) increase in cash and cash equivalents |
| (39.1) | 54.0 | |||
Cash and cash equivalents, beginning of period |
| 77.1 | 34.7 | |||
Cash and cash equivalents, end of period | $ | 38.0 | $ | 88.7 | ||
Supplemental cash flow information: |
|
|
| |||
Interest paid, net | $ | (41.9) | $ | (40.0) | ||
Income taxes paid, net | $ | (124.3) | $ | (42.7) | ||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
(1)Basis of Presentation and Overview
The accompanying Condensed Consolidated Financial Statements (Unaudited) of Black Knight, Inc. (“BKI”) and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our") were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated.
The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission ("SEC") on February 25, 2022 and other filings with the SEC.
Description of Business
We are a premier provider of integrated, innovative, mission-critical, high-performance software solutions, data and analytics to the U.S. mortgage and real estate markets. Our mission is to transform the markets we serve by delivering innovative solutions that are integrated across the homeownership lifecycle and that result in realized efficiencies, reduced risk and new opportunities for our clients to help them achieve greater levels of success.
Principles of Consolidation
The Condensed Consolidated Financial Statements (Unaudited) include the accounts of BKI, its wholly-owned subsidiaries and non-wholly owned subsidiaries in which we have a controlling financial interest either through voting rights or means other than voting rights. Intercompany transactions and balances have been eliminated in consolidation. Where our ownership interest in a consolidated subsidiary is less than 100%, the noncontrolling interests’ share of these non-wholly owned subsidiaries is reported in our Condensed Consolidated Balance Sheets (Unaudited) as a separate component of equity or within temporary equity. The noncontrolling interests’ share of the net earnings (loss) of these non-wholly owned subsidiaries is reported in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) as an adjustment to our net earnings to arrive at Net earnings attributable to Black Knight.
Redeemable Noncontrolling Interests
Prior to February 15, 2022, Optimal Blue Holdco, LLC (“Optimal Blue Holdco”) was a non-wholly owned subsidiary and considered a variable interest entity. We were the primary beneficiary of Optimal Blue Holdco through our controlling interest and our rights established in the Second Amended and Restated Limited Liability Company Agreement of Optimal Blue Holdco dated November 24, 2020 (the “OB Holdco LLC Agreement”). As such, we controlled Optimal Blue Holdco and its subsidiaries, and we consolidated its financial position and results of operations. Prior to February 15, 2022, we owned 60% of Optimal Blue Holdco. Redeemable noncontrolling interests primarily represented the collective 40% equity interest in Optimal Blue Holdco owned by Cannae Holdings, LLC ("Cannae") and affiliates of Thomas H. Lee Partners, L.P. ("THL"). As these redeemable noncontrolling interests provided for redemption features not solely within our control, they were presented outside of shareholders' equity.
On February 15, 2022, we entered into a purchase agreement with Cannae and THL and acquired all of their issued and outstanding Class A units of Optimal Blue Holdco through Optimal Blue I, LLC (“Optimal Blue I”), a Delaware limited liability company and our wholly-owned subsidiary, in exchange for aggregate consideration of 36.4 million shares of Dun & Bradstreet Holdings, Inc. (“DNB”) common stock valued at $722.5 million and $433.5 million in cash, included as a financing cash outflow on the Condensed Consolidated Statements of Cash Flows (Unaudited), funded with borrowings under our revolving credit facility. The aggregate consideration of $1.156 billion and number of shares of DNB common stock paid to Cannae and THL was based on the 20-day volume-weighted average trading price of DNB for the period ended on February 14, 2022. As of February 15, 2022, we own 100% of the Class A units of Optimal Blue Holdco.
6
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Reporting Segments
We conduct our operations through two reporting segments: (1) Software Solutions and (2) Data and Analytics. See further discussion in Note 13 — Segment Information.
Merger Agreement
On May 4, 2022, we entered into a definitive agreement to be acquired by Intercontinental Exchange, Inc. (“ICE”), a leading global provider of data, technology, and market infrastructure, in a transaction valued at approximately $13.1 billion, or $85 per share, with consideration in the form of a mix of cash (80%) and stock (20%) (the “ICE Transaction”). The aggregate cash consideration in the ICE Transaction consists of approximately $10.5 billion and the aggregate stock consideration is valued at approximately $2.6 billion based on ICE’s 10-day volume weighted average price as of May 2, 2022 of $118.09. Black Knight shareholders can elect to receive either cash or stock, subject to proration, with the value of the cash election and the stock election equalized at closing. The ICE Transaction is expected to close in the first half of 2023, subject to the receipt of regulatory approvals, Black Knight shareholder approval and the satisfaction of customary closing conditions. The ICE Transaction has been approved by the Boards of Directors of Black Knight and ICE.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act’) and related rules, the ICE Transaction may not be completed until notifications have been given and information furnished to the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) and the United States Federal Trade Commission, (the “FTC”) and all statutory waiting period requirements have been satisfied. Completion of the ICE Transaction is subject to the expiration or earlier termination of the applicable waiting period under the HSR Act. ICE and Black Knight each filed their respective HSR Act notification forms on May 18, 2022. On June 17, 2022, the parties each received a Request for Additional Information and Documentary Material (the “Second Request”) from the FTC with respect to the ICE Transaction. Accordingly, the HSR waiting period will expire 30 days after ICE and Black Knight each certify their substantial compliance with the Second Request, unless earlier terminated by the FTC or extended by agreement of the parties or court order.
(2)Condensed Consolidated Financial Statement Details
Cash and Cash Equivalents
Cash and cash equivalents are unrestricted and include the following (in millions):
| ||||||
June 30, 2022 |
| December 31, 2021 | ||||
Cash | $ | 28.0 | $ | 24.0 | ||
Cash equivalents |
| 10.0 |
| 53.1 | ||
Cash and cash equivalents | $ | 38.0 | $ | 77.1 | ||
Trade Receivables, Net
A summary of Trade receivables, net of allowance for credit losses is as follows (in millions):
| ||||||
June 30, 2022 |
| December 31, 2021 | ||||
Trade receivables — billed | $ | 159.9 | $ | 147.4 | ||
Trade receivables — unbilled |
| 47.1 |
| 47.1 | ||
Trade receivables |
| 207.0 |
| 194.5 | ||
Allowance for credit losses |
| (3.8) |
| (2.7) | ||
Trade receivables, net | $ | 203.2 | $ | 191.8 | ||
7
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in millions):
| ||||||
| June 30, 2022 |
| December 31, 2021 | |||
Prepaid expenses | $ | 51.2 | $ | 44.7 | ||
Contract assets, net |
| 25.5 |
| 23.0 | ||
Income tax receivables | 11.7 | 6.5 | ||||
Other current assets |
| 9.3 |
| 8.8 | ||
Prepaid expenses and other current assets | $ | 97.7 | $ | 83.0 | ||
Other Non-Current Assets
Other non-current assets consist of the following (in millions):
June 30, 2022 |
| December 31, 2021 | ||||
Contract assets, net | $ | 98.0 | $ | 80.2 | ||
Property records database | 60.6 | 60.6 | ||||
Right-of-use assets |
| 29.0 |
| 32.9 | ||
Deferred compensation plan related assets |
| 22.7 |
| 25.2 | ||
Contract credits |
| 22.9 |
| 23.6 | ||
Prepaid expenses |
| 5.8 |
| 4.5 | ||
Other |
| 2.2 |
| 3.3 | ||
Other non-current assets | $ | 241.2 | $ | 230.3 | ||
Trade Accounts Payable and Other Accrued Liabilities
Trade accounts payable and other accrued liabilities consist of the following (in millions):
June 30, 2022 |
| December 31, 2021 | ||||
Accrued interest | $ | 12.3 | $ | 12.3 | ||
Lease liabilities, current | 10.4 | 10.8 | ||||
Trade accounts payable |
| 10.6 |
| 7.9 | ||
Other taxes payable and accrued |
| 6.1 |
| 4.8 | ||
Accrued client liabilities | 3.8 | 3.8 | ||||
Other |
| 16.6 |
| 24.9 | ||
Trade accounts payable and accrued liabilities | $ | 59.8 | $ | 64.5 | ||
Deferred Revenues
Revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $20.6 million and $12.1 million during the three months ended June 30, 2022 and 2021, respectively, and $41.5 million and $29.8 million during the six months ended June 30, 2022 and 2021, respectively.
8
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Depreciation and Amortization
Depreciation and amortization includes the following (in millions):
Three months ended June 30, |
| Six months ended June 30, | ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Other intangible assets | $ | 36.8 | $ | 39.1 | $ | 73.6 | $ | 77.9 | ||||
Software | 35.6 | 32.7 | 71.1 | 63.3 | ||||||||
Property and equipment |
| 9.7 | 10.0 |
| 19.6 |
| 20.2 | |||||
Deferred contract costs |
| 10.4 | 8.6 |
| 19.7 |
| 16.8 | |||||
Total | $ | 92.5 | $ | 90.4 | $ | 184.0 | $ | 178.2 | ||||
Other Non-Current Liabilities
Other non-current liabilities consist of the following (in millions):
June 30, 2022 |
| December 31, 2021 | ||||
Lease liabilities, non-current | $ | 21.4 | $ | 26.4 | ||
Deferred compensation plan | 21.5 | 24.4 | ||||
Unrealized losses on interest rate swaps (Note 7) | — | 13.9 | ||||
Other | 13.7 | 14.0 | ||||
Other non-current liabilities | $ | 56.6 | $ | 78.7 | ||
A
(3)Business Acquisitions
2021 Acquisitions
On March 16, 2021, we completed the acquisition of the technology assets and business of NexSpring Financial, LLC (“NexSpring”), which is reported within our Software Solutions segment, and is expected to broaden our ability to serve mortgage brokers.
On May 17, 2021, we completed the acquisition of 100% of the equity interests in eMBS, Inc. (“eMBS”), a leading data and analytics aggregator for residential mortgage-backed securities, which is reported within our Data & Analytics segment, and is expected to solidify and further expand our market leadership in solutions and data for agency-backed securities.
On July 7, 2021, we completed the acquisition of 100% of the equity interests in TOMN Holdings, Inc. and its subsidiaries (“Top of Mind”), which is reported within our Software Solutions segment. Top of Mind is the developer of SurefireSM, a leading customer relationship management and marketing automation system for the mortgage industry.
During the three and six months ended June 30, 2022, we recorded a measurement period adjustment of $0.2 million related to our 2021 acquisition of Top of Mind that reduced Goodwill and Deferred income taxes for certain book and tax basis differences as we completed the tax return filings for the pre-acquisition period.
(4)Investments in Unconsolidated Affiliates
DNB is a leading global provider of business decisioning data and analytics. On January 8, 2021, DNB completed its acquisition of Bisnode Business Information Group AB (the “Bisnode acquisition”). In connection with the Bisnode acquisition, DNB issued 6.2 million shares of common stock, which resulted in a decrease in our ownership interest in DNB from 13.0% to 12.8% at that time.
On February 15, 2022, we exchanged 36.4 million shares of DNB common stock and $433.5 million in cash in connection with the acquisition of the remaining Class A units in Optimal Blue Holdco we acquired from Cannae and THL. The number of shares of DNB common stock was valued at $722.5 million based on the 20-day volume-weighted average trading price of DNB for the period ended on
9
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
February 14, 2022. We recognized a gain of $305.4 million, net of tax of $102.6 million, related to this transaction. As of June 30, 2022, we own 18.5 million shares of DNB common stock for an ownership interest of approximately 4.3% of DNB’s outstanding common stock.
We hold less than 20% of the outstanding common equity of DNB, but we continue to account for our investment under the equity method because we continue to have significant influence over DNB primarily through a combination of an agreement with certain other DNB investors pursuant to which we agreed to collectively vote together on matters related to the election of DNB directors for a period of three years following the initial public offering of DNB and our investment.
As of June 30, 2022, DNB’s closing share price was $15.03, and the fair value of our investment in DNB was $277.7 million before tax.
Summarized consolidated financial information for DNB is presented below (in millions):
Three months ended June 30, | Six months ended June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Revenues | $ | 537.3 | $ | 520.9 | $ | 1,073.3 | $ | 1,025.4 | ||||
Loss before provision for income taxes and equity in net income of affiliates |
| (0.7) |
| (8.5) |
| (40.5) |
| (42.2) | ||||
Net loss |
| — |
| (50.8) |
| (29.8) |
| (74.1) | ||||
Net loss attributable to DNB | (1.8) |
| (51.7) |
| (33.1) |
| (76.7) | |||||
Equity in (losses) earnings of unconsolidated affiliates, net of tax consists of the following (in millions):
(5)Earnings Per Share
Diluted net earnings per share includes the effect of unvested restricted stock awards, restricted stock unit awards (“RSUs”) and Optimal Blue Holdco profits interests units (“OB PIUs”). For the three and six months ended June 30, 2021, the OB PIUs were excluded from the
10
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
diluted earnings per share calculation because the effect of their inclusion would have been antidilutive. The following table sets forth the computation of basic and diluted net earnings per share (in millions, except per share amounts):
| Three months ended June 30, | Six months ended June 30, | ||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Basic: |
|
|
|
|
|
|
| |||||
Net earnings attributable to Black Knight | $ | 40.3 | $ | 39.7 | $ | 404.9 | $ | 93.8 | ||||
Shares used for basic net earnings per share: |
|
|
|
|
|
|
|
| ||||
Weighted average shares of common stock outstanding |
| 154.5 |
| 155.4 |
| 154.4 |
| 155.5 | ||||
Basic net earnings per share | $ | 0.26 | $ | 0.26 | $ | 2.62 | $ | 0.60 | ||||
Diluted: |
|
|
|
|
|
|
|
| ||||
Net earnings attributable to Black Knight | $ | 40.3 | $ | 39.7 | $ | 404.9 | $ | 93.8 | ||||
Shares used for diluted net earnings per share: |
|
|
|
|
|
|
|
| ||||
Weighted average shares of common stock outstanding |
| 154.5 |
| 155.4 |
| 154.4 |
| 155.5 | ||||
Dilutive effect of unvested restricted shares of common stock and OB PIUs |
| 1.1 |
| 0.3 |
| 1.1 |
| 0.3 | ||||
Weighted average shares of common stock, diluted |
| 155.6 |
| 155.7 |
| 155.5 |
| 155.8 | ||||
Diluted net earnings per share | $ | 0.26 | $ | 0.25 | $ | 2.60 | $ | 0.60 | ||||
(6)Related Party Transactions
Our service arrangements with related parties are priced within the range of prices we offer to third parties. We believe the amounts earned from or charged by us under each of the following arrangements are fair and reasonable. However, the amounts we earned or that were charged under these arrangements were not negotiated at arm's length and may not represent the terms that we might have obtained from an unrelated third party.
DNB
DNB is considered to be a related party primarily due to the combination of our investment in DNB and our Executive Chairman, who is also the Chief Executive Officer of DNB. Refer to Note 4 — Investments in Unconsolidated Affiliates for additional details.
In June 2021, we entered into a five-year agreement with DNB to provide them with certain products and data over the term of the agreement, as well as professional services, for an aggregate fee of approximately $34 million over the term of the agreement. During the same period, we also entered into an agreement with DNB for access to certain of their data assets for an aggregate fee of approximately $24 million over the term of the agreement. In addition, we will jointly market certain solutions and data.
The following is a summary of amounts related to agreements with DNB included in our Condensed Consolidated Balance Sheets (Unaudited) (in millions):
June 30, 2022 |
| December 31, 2021 | ||||
Receivables from related parties | $ | 6.1 | $ | 0.2 | ||
Prepaid expenses and other current assets |
| — |
| 2.3 | ||
Deferred revenues (current) | 6.9 | 6.2 | ||||
Deferred revenues (non-current) |
| 2.7 |
| 1.4 | ||
11
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following is a summary of amounts related to agreements with DNB included in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) (in millions):
| Three months ended | Six months ended | ||||
June 30, 2022 |
| June 30, 2022 | ||||
Revenues | $ | 3.0 | $ | 4.0 | ||
Operating expenses |
| 1.2 |
| 2.3 | ||
The agreements with DNB had no effect on our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three and six months ending June 30, 2021.
Trasimene
Prior to June 16, 2021, Trasimene Capital Management, LLC ("Trasimene") was considered a related party because the former Chairman of our Board of Directors owns a controlling interest in Trasimene. As of June 16, 2021, our former Chairman retired from our Board of Directors and became our Chairman Emeritus, and Trasimene is no longer considered a related party. During the periods April 1, 2021 through June 16, 2021 and January 1, 2021 through June 16, 2021 we recognized $0.2 million and $0.5 million, respectively, in fees paid to Trasimene related to our acquisitions, which are included in Transition and integration costs in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).
(7)Long-Term Debt
Long-term debt consists of the following (in millions):
| June 30, 2022 |
| December 31, 2021 | |||
Term A Loan | $ | 1,135.6 | $ | 1,150.0 | ||
Revolving Credit Facility |
| 646.7 |
| 256.0 | ||
Senior Notes |
| 1,000.0 |
| 1,000.0 | ||
Other |
| 5.8 |
| 8.9 | ||
Total long-term debt principal |
| 2,788.1 |
| 2,414.9 | ||
Less: current portion of long-term debt |
| (33.6) |
| (32.5) | ||
Long-term debt before debt issuance costs and discount |
| 2,754.5 |
| 2,382.4 | ||
Less: debt issuance costs and discount |
| (17.8) |
| (19.8) | ||
Long-term debt, net of current portion | $ | 2,736.7 | $ | 2,362.6 | ||
As of June 30, 2022, principal maturities, including payments related to our finance leases, are as follows (in millions):
2022 |
| $ | 15.2 |
2023 | 33.7 | ||
2024 |
| 57.5 | |
2025 |
| 57.5 | |
2026 |
| 1,624.2 | |
Thereafter |
| 1,000.0 | |
Total | $ | 2,788.1 |
12
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
2021 Credit Agreement
On March 10, 2021, our indirect subsidiary Black Knight Infoserv, LLC (“BKIS”) entered into a second amended and restated credit and guaranty agreement (the “2021 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto.
The 2021 Credit Agreement provides for (i) a $1,150.0 million term loan A facility (the “Term A Loan”) and (ii) a $1,000.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term A Loan, collectively, the “Facilities”), the proceeds of which were used to repay in full the indebtedness outstanding under the previous term A facility and revolving credit facility. As a result of the refinancing, we recognized $2.5 million of expense during the six months ended June 30, 2021 in Other expense, net on the Condensed Consolidated Statement of Earnings and Comprehensive Earnings (Unaudited).
As of June 30, 2022, the interest rate for the Facilities was based on the Eurodollar rate plus a margin of 150 basis points and was approximately 3.1%. As of June 30, 2022, we had $353.3 million unused capacity on the Revolving Credit Facility, and the unused commitment fee was 20 basis points.
The Facilities are guaranteed by BKIS’s wholly-owned domestic restricted subsidiaries, as defined by the 2021 Credit Agreement, and Black Knight Financial Services, LLC, and are secured by associated collateral agreements that pledge a lien on the majority of BKIS’s assets and the assets of the guarantors, in each case, subject to customary exceptions.
Senior Notes
On August 26, 2020, BKIS completed the issuance and sale of $1.0 billion aggregate principal amount of 3.625% senior unsecured notes due 2028 (the "Senior Notes"). The Senior Notes have a coupon rate of 3.625% and mature on September 1, 2028. Interest is paid semi-annually in arrears on September 1 and March 1 of each year and commenced on March 1, 2021. The obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by the same guarantors that guarantee the 2021 Credit Agreement (collectively, the “Guarantors”). The Senior Notes are effectively subordinated to any obligations that are secured, including obligations under the 2021 Credit Agreement, to the extent of the value of the assets securing those obligations. The Senior Notes are structurally subordinated to all liabilities of BKIS’ subsidiaries that do not guarantee the Senior Notes.
Other Debt
Other debt includes financing agreements primarily related to certain data processing and maintenance services and finance lease agreements for certain computer equipment. For the six months ended June 30, 2021, non-cash investing and financing activity was $2.5 million related to the unpaid portion of our finance lease agreements. There was no non-cash investing and financing activity for the six months ended June 30, 2022.
Fair Value of Long-Term Debt
The fair values of our Facilities and Senior Notes are based upon established market prices for the securities using Level 2 inputs. The fair value of our Facilities approximates their carrying value as of June 30, 2022. The fair value of our Senior Notes as of June 30, 2022 was $870.0 million compared to its carrying value of $990.4 million, net of original issue discount and debt issuance costs.
Interest Rate Swaps
We enter into interest rate swap agreements to hedge forecasted monthly interest rate payments on our floating rate debt. As of June 30, 2022, we had the following interest rate swap agreements (collectively, the "Swap Agreements") (in millions):
Effective dates |
| Notional amount |
| Fixed rates | ||
April 30, 2018 through April 30, 2023 | $ | 250.0 |
| 2.61 | % | |
January 31, 2019 through January 31, 2023 | $ | 300.0 |
| 2.65 | % | |
13
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Under the terms of the Swap Agreements, we receive payments based on the 1-month LIBOR (approximately 1.67% as of June 30, 2022).
During the six months ended June 30, 2022, the following interest rate swap agreement expired (in millions):
Effective dates |
| Notional amount |
| Fixed rate | ||
March 31, 2017 through March 31, 2022 | $ | 200.0 |
| 2.08 | % | |
We entered into the Swap Agreements to convert a portion of the interest rate exposure on our floating rate debt from variable to fixed. We designated these Swap Agreements as cash flow hedges. A portion of the amount included in Accumulated other comprehensive loss is reclassified into Interest expense, net as a yield adjustment as interest is either paid or received on the hedged debt. The fair value of our Swap Agreements is based upon Level 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreements.
It is our policy to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. We believe our interest rate swap counterparties will be able to fulfill their obligations under our agreements, and we believe we will have debt outstanding through the various expiration dates of the swaps such that the occurrence of future cash flow hedges remains probable.
The estimated fair values of our Swap Agreements are as follows (in millions):
| June 30, 2022 |
| December 31, 2021 | |||
Other current assets | $ | 1.0 | $ | — | ||
Other current liabilities | $ | — | $ | 1.0 | ||
Other non-current liabilities | $ | — | $ | 13.9 | ||
A cumulative gain of $1.0 million ($0.7 million net of tax) and cumulative loss of $14.9 million ($11.1 million net of tax) is reflected in Accumulated other comprehensive loss on our Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2022 and December 31, 2021, respectively. Below is a summary of the effect of derivative instruments on amounts recognized in Other comprehensive earnings (loss) ("OCE") on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) (in millions):
| Six months ended June 30, | |||||||||||
2022 | 2021 | |||||||||||
| Amount of loss |
|
| Amount of loss | ||||||||
Amount of gain | reclassified from | Amount of gain | reclassified from | |||||||||
recognized | Accumulated OCE | recognized | Accumulated OCE | |||||||||
in OCE | into Net earnings | in OCE | into Net earnings | |||||||||
Swap agreements | $ | 6.6 | $ | 5.2 | $ | 0.3 | $ | 7.9 | ||||
As of June 30, 2022, the remaining balance in Accumulated other comprehensive loss is expected to be reclassified into Interest expense, net over the remaining term (less than 1 year).
14
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
(8)Fair Value Measurements
Fair Value of Financial Assets and Liabilities
Fair value represents the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of financial assets and liabilities are determined using the following fair value hierarchy:
| ● | Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. |
| ● | Level 2 inputs to the valuation methodology include: |
| o | quoted prices for similar assets or liabilities in active markets; |
| o | quoted prices for identical or similar assets or liabilities in inactive markets; |
| o | inputs other than quoted prices that are observable for the asset or liability; and |
| o | inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in millions):
The fair value of Redeemable noncontrolling interests and Contingent consideration was primarily determined based on significant estimates and assumptions, including Level 3 inputs. The estimates and assumptions include the projected timing and amount of future cash flows and discount rates reflecting the rate inherent in the future cash flows. Refer to Note 1 — Basis of Presentation and Overview for additional information.
15
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The following table presents a summary of the change in fair value of our Level 3 fair value measurements (in millions):
Beginning balance, December 31, 2021 |
| $ | 1,193.7 |
Contingent consideration adjustments related to prior year acquisition | (0.9) | ||
Acquisition of remaining outstanding Class A redeemable noncontrolling interests in Optimal Blue Holdco (Note 1) | (1,156.0) | ||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco | 14.6 | ||
Ending balance, June 30, 2022 | $ | 51.4 |
(9)Income Taxes
Our effective tax rate for the three months ended June 30, 2022 and 2021 was 22.3% and 22.0%, respectively. Our effective tax rates for the three months ended June 30, 2022 and 2021 differ from our statutory rate due to the effect of research and experimentation tax credits. Our effective tax rate for the three months ended June 30, 2021 also includes the effect of tax benefits relating to the vesting of restricted shares of common stock.
Our effective tax rate for the six months ended June 30, 2022 and 2021 was 9.6% and 17.1%, respectively. Our effective tax rate for the six months ended June 30, 2022 includes the effect of a $14.1 million discrete income tax benefit related to the establishment of a deferred tax asset as a result of our reorganization of certain wholly-owned subsidiaries within the Optimal Blue partnership investment structure. Our effective tax rate for the six months ended June 30, 2021 differs from our statutory rate primarily due to the effect of excess tax benefits relating to the vesting of restricted shares of our common stock and research and experimentation tax credits.
(10)Commitments and Contingencies
Legal and Regulatory Matters
In the ordinary course of business, we are involved in various pending and threatened litigation and regulatory matters related to our operations, some of which include claims for punitive or exemplary damages. Our ordinary course litigation may include class action lawsuits, which make allegations related to various aspects of our business. From time to time, we also receive requests for information from various state and federal regulatory authorities, some of which take the form of civil investigative demands or subpoenas. Some of these regulatory inquiries may result in the assessment of fines for violations of regulations or settlements with such authorities requiring a variety of remedies. We believe that none of these actions depart from customary litigation or regulatory inquiries incidental to our business.
We review lawsuits and other legal and regulatory matters (collectively "legal proceedings") on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings where it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. Actual losses may materially differ from the amounts recorded, and the ultimate outcome of our pending cases is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present, we do not believe the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.
PennyMac Litigation
On November 5, 2019, Black Knight Servicing Technologies, LLC (“BKST”), an indirect, wholly-owned subsidiary of Black Knight, filed a Complaint and Demand for Jury Trial (the “Black Knight Complaint”) against PennyMac Loan Services, LLC (“PennyMac”) in the Circuit Court for the Fourth Judicial Circuit in and for Duval County, Florida. The Black Knight Complaint includes causes of action for breach of contract and misappropriation of MSP® System trade secrets in order to develop an imitation mortgage processing system intended to replace the MSP® System. The Black Knight Complaint seeks damages for breach of contract and misappropriation of trade secrets, injunctive relief under the Florida Uniform Trade Secrets Act and declaratory judgment that BKST owns all intellectual property and software developed by or on behalf of PennyMac as a result of its wrongful use of and access to the MSP® System and related trade secret and confidential information. PennyMac filed a motion to compel arbitration of the action, and the trial court granted the motion on April 6,
16
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
2020. The trial court’s order compelling arbitration was confirmed by the Florida First District Court of Appeal on January 6, 2021. On February 17, 2022, Black Knight filed an amended arbitration demand and PennyMac filed an answering statement on March 2, 2022.
Shortly after the filing of the Black Knight Complaint, on November 6, 2019, PennyMac filed an Antitrust Complaint (the “PennyMac Complaint”) against Black Knight in the United States District Court for the Central District of California. The PennyMac Complaint included causes of action for alleged monopolization and attempted monopolization under Section 2 of the Sherman Antitrust Act, violation of California’s Cartwright Act, violation of California’s Unfair Competition Law and common law unfair competition under California law. The PennyMac Complaint sought equitable remedies, damages and other monetary relief, including treble and punitive damages. Generally, PennyMac alleged that Black Knight relies on various anticompetitive, unfair and discriminatory practices to maintain and to enhance its dominance in the mortgage servicing platform market and in an attempt to monopolize the platform software applications market. Black Knight moved to dismiss the PennyMac Complaint or have the action transferred to Florida based upon a forum selection clause in the agreement with BKST. On February 13, 2020, the judge granted Black Knight's motion to transfer the case to Florida and denied as moot the motion to dismiss. On April 17, 2020, PennyMac filed a notice of dismissal of this action without prejudice and indicated that they intended to bring the claims raised in the dismissed PennyMac Complaint as defenses, third party claims and/or counterclaims in arbitration. On April 23, 2020, the court entered an order dismissing the action without prejudice and directing that the clerk close the case. On April 28, 2020, PennyMac submitted this matter to the American Arbitration Association ("AAA") for arbitration. The arbitrator was confirmed by the AAA on July 21, 2020. On February 17, 2022 PennyMac filed an amended arbitration demand and Black Knight filed an answering statement on March 2, 2022.
The arbitrator set Black Knight's trade secret case for a 10-day final hearing beginning on January 9, 2023 and set PennyMac's antitrust case for a 10-day final hearing beginning on January 23, 2023.
As these cases continue to evolve, it is not possible to reasonably estimate the probability that we will ultimately prevail on our lawsuit or be held liable for the violations alleged in the PennyMac Complaint, nor is it possible to reasonably estimate the ultimate gain or loss, if any, or range of gain or loss that could result from these cases.
ICE Transaction Complaint
On July 5, 2022, a complaint challenging the ICE Transaction was filed on behalf of a purported stockholder of Black Knight against Black Knight and the members of the Black Knight Board of Directors in the U.S. District Court for the Southern District of New York. The complaint is captioned Ryan O’Dell v. Black Knight, Inc., et al., Civil Action No. 22-cv-5715 (S.D.N.Y. 2022). The defendants have not yet been served. The complaint asserts federal securities claims under Sections 14(a) and 20(a) of the Exchange Act, alleging that certain disclosures regarding the ICE Transaction in the preliminary proxy statement/prospectus are materially false and misleading. The complaint seeks an injunction barring the ICE Transaction, rescissory damages in the event the ICE Transaction has been consummated, other unspecified damages and payment of the plaintiff’s costs and disbursements, including attorneys’ fees and expenses. We believe that the claims asserted in this complaint are meritless.
Indemnifications and Warranties
We often agree to indemnify our clients against damages and costs resulting from claims of patent, copyright, trademark infringement or breaches of confidentiality associated with use of our software through software licensing agreements. Historically, we have not made any payments under such indemnifications, but continue to monitor the conditions that are subject to the indemnifications to identify whether a loss has occurred that is both probable and estimable that would require recognition. In addition, we warrant to clients that our software operates substantially in accordance with the software specifications. Historically, no costs have been incurred related to software warranties and none are expected in the future, and as such, no accruals for warranty costs have been made.
Indemnification Agreement
We are party to a cross-indemnity agreement dated December 22, 2014, with ServiceLink Holdings, LLC ("ServiceLink"). Pursuant to this agreement, ServiceLink indemnifies us from liabilities relating to, arising out of or resulting from the conduct of ServiceLink’s business or any action, suit or proceeding in which we or any of our subsidiaries are named by reason of being a successor to the business of Lender
17
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Processing Services, Inc. and the cause of such action, suit or proceeding relates to the business of ServiceLink. In return, we indemnify ServiceLink for liabilities relating to, arising out of, or resulting from the conduct of our business.
(11)Revenues
Disaggregation of Revenues
The following tables summarize revenues from contracts with clients (in millions):
| Three months ended June 30, 2022 | ||||||||||||||
| Servicing |
| Origination |
| Software |
| Data and |
| |||||||
Software | Software | Solutions | Analytics | Total | |||||||||||
Software solutions | $ | 203.3 | 100.4 | $ | 303.7 | $ | 9.7 | $ | 313.4 | ||||||
Professional services |
| 18.4 | 13.2 |
| 31.6 |
| 2.1 |
| 33.7 | ||||||
Data solutions |
| — | 1.5 |
| 1.5 |
| 42.6 |
| 44.1 | ||||||
Other |
| — | 2.6 |
| 2.6 |
| 0.7 |
| 3.3 | ||||||
Revenues | $ | 221.7 | $ | 117.7 | $ | 339.4 | $ | 55.1 | $ | 394.5 | |||||
| Three months ended June 30, 2021 | ||||||||||||||
| Servicing |
| Origination |
| Software |
| Data and |
| |||||||
Software | Software | Solutions | Analytics | Total | |||||||||||
Software solutions | $ | 187.4 | 82.6 | $ | 270.0 | $ | 9.3 | $ | 279.3 | ||||||
Professional services |
| 20.4 | 12.4 |
| 32.8 |
| 0.1 |
| 32.9 | ||||||
Data solutions |
| — | 0.5 |
| 0.5 |
| 45.9 |
| 46.4 | ||||||
Other |
| — | 2.1 |
| 2.1 |
| 0.6 |
| 2.7 | ||||||
Revenues | $ | 207.8 | $ | 97.6 | $ | 305.4 | $ | 55.9 | $ | 361.3 | |||||
| Six months ended June 30, 2022 | ||||||||||||||
Servicing |
| Origination |
| Software |
| Data and |
| ||||||||
Software | Software | Solutions | Analytics | Total | |||||||||||
Software solutions | $ | 407.3 | $ | 192.9 | $ | 600.2 | $ | 19.2 | $ | 619.4 | |||||
Professional services |
| 37.0 | 25.5 |
| 62.5 |
| 2.1 |
| 64.6 | ||||||
Data solutions |
| — | 2.0 |
| 2.0 |
| 89.0 |
| 91.0 | ||||||
Other |
| — | 5.4 |
| 5.4 |
| 1.3 |
| 6.7 | ||||||
Revenues | $ | 444.3 | $ | 225.8 | $ | 670.1 | $ | 111.6 | $ | 781.7 | |||||
| Six months ended June 30, 2021 | ||||||||||||||
Servicing |
| Origination |
| Software |
| Data and |
| ||||||||
Software | Software | Solutions | Analytics | Total | |||||||||||
Software solutions | $ | 371.5 | $ | 160.4 | $ | 531.9 | $ | 18.0 | $ | 549.9 | |||||
Professional services |
| 39.0 | 24.2 |
| 63.2 |
| 0.3 |
| 63.5 | ||||||
Data solutions |
| — | 1.7 |
| 1.7 |
| 90.3 |
| 92.0 | ||||||
Other |
| — | 4.4 |
| 4.4 |
| 1.2 |
| 5.6 | ||||||
Revenues | $ | 410.5 | $ | 190.7 | $ | 601.2 | $ | 109.8 | $ | 711.0 | |||||
Our Software Solutions segment offers leading software and hosting solutions that facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. These solutions primarily consist of processing and workflow management software applications. Our servicing software solutions primarily include our core servicing software solution that automates loan servicing, including
18
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
loan setup and ongoing processing, customer service, accounting, reporting to the secondary mortgage market and investors and web-based workflow information systems. Our origination software solutions primarily include our solutions that automate and facilitate the origination of mortgage loans, offer product, pricing and eligibility capabilities and provide an interconnected network allowing the various parties and systems associated with lending transactions to exchange data quickly and efficiently. Professional services consists of pre-implementation and post-implementation support and services and are primarily billed on a time and materials basis. Professional services may also include dedicated teams provided as part of agreements with software and hosting solutions clients.
Our Data and Analytics segment offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, behavioral models, a multiple listing service software solution and other data solutions.
Transaction Price Allocated to Future Performance Obligations
Our disclosure of transaction price allocated to future performance obligations excludes the following:
| ● | Volume-based fees in excess of contractual minimums and other usage-based fees to the extent they are part of a single performance obligation and meet certain variable allocation criteria; |
| ● | Performance obligations that are part of a contract with an original expected duration of one year or less; and |
| ● | Transactional fees based on a fixed fee per transaction when we have the right to invoice once we have completed the performance obligation. |
As of June 30, 2022, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $2.6 billion and is expected to be recognized as follows: 14% by December 31, , 58% by December 31, , 82% by December 31, and the rest thereafter.
(12)Equity
Share Repurchase Program
On February 12, 2020, our Board of Directors approved a three-year share repurchase program authorizing us to repurchase up to 10.0 million shares of our outstanding common stock through February 12, 2023, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. During the six months ended June 30, 2021, we repurchased 0.6 million shares of our common stock for an aggregate of $46.7 million at an average price per share of $75.19. There were no share repurchases during the three months ended June 30, 2022 and 2021, and the six months ended June 30, 2022. As of June 30, 2022, we have 8.0 million shares remaining under our share repurchase authorization.
Omnibus Incentive Plan
A summary of restricted shares and RSUs granted in 2022 is as follows:
Number of shares | Grant date fair | Vesting period | |||||||
Dates |
| granted |
| value per share |
| (in years) |
| Vesting criteria | |
March 10, 2022(1) | 809,166 | $ | 57.18 | 3.0 | Service and Performance | ||||
Various | 88,571 | $ | 57.99 - 70.91 | 1.0 - 4.0 | Service | ||||
| (1) | This award is subject to an independent performance target for each of three consecutive 12-month measurement periods. Vesting of each tranche is independent of the satisfaction of the annual performance target for other tranches. |
19
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Activity related to restricted stock and RSUs in 2022 is as follows:
Weighted average | |||||
grant date | |||||
| Shares |
| fair value | ||
Balance, December 31, 2021 | 1,269,789 |
| $ | 70.79 | |
Granted |
| 897,737 | $ | 58.32 | |
Forfeited |
| (24,149) | $ | 70.27 | |
Vested |
| (586,838) | $ | 65.97 | |
Balance, June 30, 2022 |
| 1,556,539 | $ | 65.42 | |
Equity-based compensation expense related to our restricted shares and RSUs was $10.8 million and $10.9 million for the three months ended June 30, 2022 and 2021, respectively, and $19.3 million and $18.1 million for the six months ended June 30, 2022 and 2021, respectively. Equity-based compensation includes accelerated recognition of $2.9 million for the three and six months ended June 30, 2021. These expenses are included in Operating expenses in the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited). As of June 30, 2022, total unrecognized compensation cost was $84.1 million and is expected to be recognized over a weighted average period of approximately 1.9 years.
Profits Interests Units
The fair value of OB PIUs is measured using the Black-Scholes model. The OB PIUs vest over three years, with cliff vesting after the third year. If no public offering has been consummated as of the third anniversary of the acquisition of Optimal Blue, LLC, holders of the OB PIUs have an option to put their profits interests to us once per quarter for the twelve months that begins six months after the OB PIU holder’s vesting date, and once per year thereafter. In accordance with terms of the third amended and restated limited liability company agreement of Optimal Blue Holdco, a change in control of Black Knight does not accelerate vesting of the OB PIUs, but triggers certain redemption rights and gives each holder of OB PIUs the right to elect that Optimal Blue Holdco redeem all of the holder’s vested and unvested profits interests for a redemption price determined based on an appraisal process.
The units may be settled in cash or Black Knight common stock or a combination of both at our election and will be settled at the current fair value at the time we receive notice of the put election. As the OB PIUs provide for redemption features not solely within our control, we classify the redemption value outside of permanent equity in redeemable noncontrolling interests. The redemption value is equal to the difference in the per unit fair value of the underlying member units and the hurdle amount, based upon the proportionate required service period rendered to date.
Equity-based compensation expense related to the OB PIUs was $2.1 million and $4.3 million for the three and six months ended June 30, 2022, respectively, and $2.2 million and $4.4 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the total unrecognized compensation cost related to non-vested OB PIUs is $12.2 million, which is expected to be recognized over a weighted average period of approximately 1.4 years.
(13)Segment Information
Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting ("ASC 280") establishes standards for reporting information about segments and requires that a public business enterprise reports financial and descriptive information about its segments. Segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our chief executive officer is identified as the CODM as defined by ASC 280. To align with the internal management of our business operations based on service offerings, our business is organized into two segments. Refer to Note 11 — Revenues for a description of our Software Solutions and Data and Analytics segments.
Separate discrete financial information is available for these two segments, and the operating results of each segment are regularly evaluated by the CODM in order to assess performance and allocate resources. We use EBITDA as the primary profitability measure for making decisions regarding ongoing operations. EBITDA is earnings before Interest expense, net, Income tax expense and Depreciation and amortization. It also excludes Equity in (losses) earnings of unconsolidated affiliates. We do not allocate Interest expense, net, Other expense,
20
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
net, Income tax expense, equity-based compensation and certain other items, such as purchase accounting adjustments and acquisition-related costs to the segments, since these items are not considered in evaluating the segments’ overall operating performance.
Segment asset information is not included below because we do not use it to evaluate performance or allocate resources. Summarized financial information concerning our segments is shown in the tables below (in millions):
Three months ended June 30, 2021 | ||||||||||||
Software |
| Data and | Corporate and | |||||||||
| Solutions | Analytics | Other | Total | ||||||||
Revenues | $ | 305.4 | $ | 55.9 | $ | — | $ | 361.3 | ||||
Expenses: |
|
|
|
|
|
|
|
|
| |||
Operating expenses |
| 130.6 |
| 35.1 |
| 31.3 | (1) |
| 197.0 | |||
Transition and integration costs |
| — | — |
| 4.3 | (2) |
| 4.3 | ||||
EBITDA |
| 174.8 |
| 20.8 |
| (35.6) |
|
| 160.0 | |||
Depreciation and amortization |
| 33.2 |
| 3.7 |
| 53.5 | (3) |
| 90.4 | |||
Operating income (loss) |
| 141.6 |
| 17.1 |
| (89.1) |
|
| 69.6 | |||
Interest expense, net |
|
|
|
|
|
|
|
| (20.9) | |||
Other expense, net |
|
|
|
|
|
|
|
| (1.0) | |||
Earnings before income taxes and equity in losses of unconsolidated affiliates |
|
|
|
|
|
|
|
| 47.7 | |||
Income tax expense |
|
|
|
|
|
|
|
| 10.5 | |||
Earnings before equity in losses of unconsolidated affiliates |
|
|
|
|
|
|
|
| 37.2 | |||
Equity in losses of unconsolidated affiliates, net of tax |
|
|
|
|
|
|
|
| (5.0) | |||
Net earnings | 32.2 | |||||||||||
Net losses attributable to redeemable noncontrolling interests | 7.5 | |||||||||||
Net earnings attributable to Black Knight |
|
|
|
|
|
|
| $ | 39.7 | |||
21
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Six months ended June 30, 2022 | ||||||||||||
Software |
| Data and | Corporate and | |||||||||
| Solutions | Analytics |
| Other |
| Total | ||||||
Revenues | $ | 670.1 |
| $ | 111.6 | $ | — | $ | 781.7 | |||
Expenses: |
|
|
|
|
|
|
|
|
|
| ||
Operating expenses |
| 291.2 |
|
| 74.9 |
| 58.6 | (1) |
| 424.7 | ||
Transition and integration costs |
| — |
|
| — |
| 15.8 | (2) |
| 15.8 | ||
EBITDA |
| 378.9 |
| 36.7 |
| (74.4) |
|
| 341.2 | |||
Depreciation and amortization |
| 71.0 |
|
| 7.8 |
| 105.2 | (3) |
| 184.0 | ||
Operating income (loss) |
| 307.9 |
| 28.9 |
| (179.6) |
|
| 157.2 | |||
Interest expense, net |
|
|
|
|
|
|
|
|
| (43.7) | ||
Other expense, net |
|
|
|
|
|
|
|
|
| (3.6) | ||
Earnings before income taxes and equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
|
| 109.9 | ||
Income tax expense |
|
|
|
|
|
|
|
|
| 10.5 | ||
Earnings before equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
|
| 99.4 | ||
Equity in earnings of unconsolidated affiliates, net of tax |
|
|
|
|
|
|
|
|
| 303.0 | ||
Net earnings |
|
|
|
|
|
|
|
|
| 402.4 | ||
Net losses attributable to redeemable noncontrolling interests |
|
|
|
|
|
|
|
|
| 2.5 | ||
Net earnings attributable to Black Knight |
|
|
|
|
|
|
|
| $ | 404.9 | ||
Six months ended June 30, 2021 | ||||||||||||
Software | Data and | Corporate and |
| |||||||||
| Solutions |
| Analytics |
| Other |
| Total | |||||
Revenues | $ | 601.2 | $ | 109.8 | $ | — | $ | 711.0 | ||||
Expenses: |
|
|
|
|
|
|
|
|
| |||
Operating expenses |
| 255.5 |
| 69.3 |
| 58.4 | (1) |
| 383.2 | |||
Transition and integration costs |
| — |
| — |
| 12.2 | (2) |
| 12.2 | |||
EBITDA |
| 345.7 |
| 40.5 |
| (70.6) |
|
| 315.6 | |||
Depreciation and amortization |
| 64.4 |
| 7.5 |
| 106.3 | (3) |
| 178.2 | |||
Operating income (loss) |
| 281.3 |
| 33.0 |
| (176.9) |
|
| 137.4 | |||
Interest expense, net |
|
|
|
|
|
|
|
| (41.2) | |||
Other expense, net |
|
|
|
|
|
|
|
| (4.2) | |||
Earnings before income taxes and equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
| 92.0 | |||
Income tax expense |
|
|
|
|
|
|
|
| 15.7 | |||
Earnings before equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
| 76.3 | |||
Equity in earnings of unconsolidated affiliates, net of tax |
|
|
|
|
|
|
|
| 1.4 | |||
Net earnings | 77.7 | |||||||||||
Net losses attributable to redeemable noncontrolling interests | 16.1 | |||||||||||
Net earnings attributable to Black Knight |
|
|
|
|
|
|
| $ | 93.8 | |||
| (1) | Operating expenses for Corporate and Other includes equity-based compensation, including certain related payroll taxes, of $13.0 million and $13.2 million for the three months ended June 30, 2022 and 2021, respectively, and $24.2 million and $23.7 million for the six months ended June 30, 2022 and 2021, respectively. |
| (2) | Transition and integration costs primarily consists of costs associated with acquisitions and costs related to the ICE Transaction. |
| (3) | Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP. |
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding expectations, hopes, intentions or strategies regarding the future. Forward-looking statements are based on Black Knight, Inc. and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our") management’s beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. We undertake 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:
| ● | the occurrence of any event, change, or other circumstance that could give rise to a right in favor of Intercontinental Exchange, Inc. (“ICE”) or us to terminate the definitive merger agreement governing the terms and conditions of the proposed transaction; |
| ● | the outcome of any legal proceedings that may be instituted against us or ICE; |
| ● | the possibility that the proposed transaction does not close when expected or at all because required regulatory, stockholder, or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect ICE or us or the expected benefits of the proposed transaction); |
| ● | the diversion of management’s attention and time from ongoing business operations and opportunities on merger-related matters; |
| ● | security breaches against our information systems or breaches involving our third-party vendors; |
| ● | our ability to maintain and grow our relationships with our clients; |
| ● | our ability to comply with or changes to the laws, rules and regulations that affect our and our clients’ businesses; |
| ● | our ability to adapt our solutions to technological changes or evolving industry standards or to achieve our growth strategies; |
| ● | our ability to protect our proprietary software and information rights; |
| ● | the effect of any potential defects, development delays, installation difficulties or system failures on our business and reputation; |
| ● | changes in general economic, business, regulatory and political conditions; |
| ● | impacts to our business operations caused by the occurrence of a catastrophe or global crisis; |
| ● | the effects of our existing leverage on our ability to make acquisitions and invest in our business; |
| ● | risks associated with the recruitment and retention of our skilled workforce; |
| ● | risks associated with the availability of data; |
| ● | our ability to successfully consummate, integrate and achieve the intended benefits of acquisitions; |
| ● | risks associated with our investment in DNB; and |
| ● | other risks and uncertainties detailed in the "Statement Regarding Forward-Looking Information," "Risk Factors" and other sections of our Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission ("SEC"). |
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022 and other filings with the SEC.
Overview
Black Knight is a premier provider of integrated, innovative, mission-critical, high-performance software solutions, data and analytics to the U.S. mortgage and real estate markets. Our mission is to transform the markets we serve by delivering innovative solutions that are integrated across the homeownership lifecycle and that result in realized efficiencies, reduced risk and new opportunities for our clients to help them achieve greater levels of success.
We believe businesses leverage our robust, integrated solutions across the entire homeownership lifecycle to help retain existing clients, gain new clients, mitigate risk and operate more efficiently. Our clients rely on our proven, comprehensive, scalable solutions and our unwavering commitment to delivering exceptional client support to achieve their strategic goals and better serve their customers.
We have a focused strategy of continuous innovation across our business supported by strategic acquisitions – and even more importantly, the integration of those innovations and acquisitions into our broader ecosystem. Our scale allows us to continually invest in
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our business, both to meet ever-changing industry requirements and to maintain our position as a leading provider of platforms for the mortgage and real estate markets.
Deep business and regulatory expertise and an unparalleled, holistic view of the markets we serve allow us the privilege of being a trusted advisor to our clients, who range from the nation’s largest lenders and mortgage servicers to institutional portfolio managers and government entities, to individual real estate agents and mortgage brokers. Clients leverage our software ecosystem across a range of real estate and housing finance verticals through multiple digital channels, using our offerings to drive more business, reduce risk and deliver a best-in-class customer experience, all while operating more efficiently and cost-effectively.
The table below summarizes active first and second lien mortgage loans on our mortgage loan servicing software solution and the related market data, reflecting our leadership in the mortgage loan servicing software solutions market (in millions):
Note: Percentages above may not recalculate due to rounding.
| (1) | Estimates according to the Black Knight Mortgage Monitor Report as of June 30, 2022 and 2021 for U.S. first lien mortgage loans. These estimates are subject to change. |
| (2) | Estimates according to the July 2022 and 2021 Equifax National Consumer Credit Trends Report as of June 30, 2022 and 2021 for U.S. second lien mortgage loans. These estimates are subject to change. |
We have long-standing relationships with our clients – a majority of whom enter into long-term contracts that include multiple, integrated products embedded into mission-critical, client-side workflow and decision processes. This speaks to the confidence our clients, which include some of the largest financial institutions in the world, have in our solutions and our commitment to serve them. The contractual nature of our revenues and stickiness of our client relationships make our revenues both highly visible and recurring in nature. Our scale and integrated ecosystem of solutions drive significant operating leverage and cross-sell opportunities, enabling our clients to continually benefit from new and greater operational efficiencies while simultaneously allowing us to generate strong margins and cash flows.
Our Markets
The Black Knight ecosystem stretches across four core “pillar” verticals: mortgage loan servicing, mortgage origination, capital markets and real estate; with our data and analytics flowing throughout and between the interconnected ecosystem of solutions. As we integrate our innovations and acquired technologies, we are committed to continually improving the end consumer experience, driving further efficiencies for our clients and helping them to win new customers and retain existing customers.
Recent Developments
Optimal Blue Transaction
On February 15, 2022, we entered into a purchase agreement with Cannae and THL and acquired all of their Class A units of Optimal Blue Holdco, LLC (“Optimal Blue Holdco”) through Optimal Blue I, LLC (“Optimal Blue I”), a Delaware limited liability company and our wholly-owned subsidiary, in exchange for aggregate consideration of 36.4 million shares of DNB common stock valued at $722.5 million and $433.5 million in cash, funded with borrowings under our revolving credit facility. The aggregate consideration of $1.156 billion and number of shares of DNB common stock paid to Cannae and THL was based on the 20-day volume-weighted average trading price of DNB for the period ended on February 14, 2022. As of February 15, 2022, we own 100% of the Class A units of Optimal Blue Holdco. Refer to Note 1 — Basis of Presentation and Overview for additional information.
Merger Agreement
On May 4, 2022, we entered into a definitive agreement to be acquired by ICE, a leading global provider of data, technology, and market infrastructure, in a transaction valued at approximately $13.1 billion, or $85 per share, with consideration in the form of a mix of cash (80%) and stock (20%) (the “ICE Transaction”). The ICE Transaction is expected to close in the first half of 2023, subject to the receipt of regulatory
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approvals, Black Knight shareholder approval and the satisfaction of customary closing conditions. The ICE Transaction has been approved by the Boards of Directors of Black Knight and ICE. Refer to Note 1 — Basis of Presentation and Overview for additional information.
Business Trends and Conditions
Market Trends
Market trends that have spurred lenders and servicers to seek software, data and analytics solutions are as follows:
Integral role of technology in the U.S. mortgage loan industry. Over the past few years, the homebuyer’s processes have become more digital, and banks and other lenders and servicers have become increasingly focused on automation and workflow management to operate more efficiently and meet their regulatory requirements as well as using technology to enhance the consumer experience during the mortgage loan origination, closing and servicing processes. We believe technology providers must be able to support the complexity and dynamic nature of the market, display extensive industry knowledge and possess the financial resources to make the necessary investments in technology and software to support lenders and servicers. This includes an enhanced digital experience along with the application of artificial intelligence, robotic process automation and adaptive learning.
Heightened demand for enhanced transparency and analytic insight. As U.S. mortgage loan market participants work to minimize the risk in lending, servicing and capital markets, they rely on the integration of data and analytics with solutions that enhance the decision-making process. These industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals. Mortgage loan market participants are eager for timely data and insights to help them plan and react to the changing environment.
Regulatory changes and oversight. Most U.S. mortgage loan market participants are subject to a high level of regulatory oversight and regulatory requirements as federal and state governments have enacted various new laws, rules and regulations. It is our experience that mortgage lenders and servicers have become more focused on minimizing the risk of non-compliance with regulatory requirements and are looking toward solutions that assist them in complying with their regulatory requirements. We expect this trend to continue as additional governmental programs and regulations have been enacted to address the economic concerns resulting from the pandemic, and our clients have had to adapt their systems and processes in record time to the shifting landscape. In addition, our clients and our clients’ regulators have elevated their focus on privacy and data security in light of an increased level of cybersecurity incidents. We expect the industry focus on privacy and data security to continue to increase.
Lenders increasingly focused on core operations. As a result of regulatory scrutiny, a decline in refinance origination volumes due to a rising interest rate environment and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe lenders are increasingly shifting from in-house solutions to third-party solutions that provide a more comprehensive and efficient solution. Lenders require these providers to deliver best-in-class solutions and deep domain expertise and to assist them in maintaining regulatory compliance.
Our Business Segments
Our business is organized into two segments: Software Solutions and Data and Analytics.
Software Solutions
Our Software Solutions segment offers software solutions that support loan servicing, loan origination and settlement services. Our software solutions revenues were 86% of our consolidated revenues for both the three and six months ended June 30, 2022, and 85% for both the three and six months ended June 30, 2021.
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The following table summarizes our software solutions revenues (in millions):
Our servicing software solutions primarily include our core servicing software solution that automates loan servicing, including loan setup and ongoing processing, customer service, accounting, reporting to the secondary mortgage market and investors and web-based workflow information systems. Our servicing software solutions primarily generate revenues based on the number of active loans outstanding on our system, which has been very stable; however, we have some exposure to foreclosure and bankruptcy loan volumes, which can fluctuate based on economic cycles and other factors.
As a result of the effects of the broad-based response to the COVID-19 pandemic, we have seen lower foreclosure-related transactional revenues due to the mortgage loan foreclosure moratorium in the prior year period. We expect higher foreclosure-related transactional revenues in 2022 compared to 2021 as a result of the expiration of the federal foreclosure moratorium. According to corresponding Black Knight Mortgage Monitor reports, foreclosure starts were 64,000 for the three months ended June 30, 2022 compared to 11,900 for the 2021 period.
Our origination software solutions primarily include our solutions that automate and facilitate the origination of mortgage loans and provide an interconnected network allowing the various parties and systems associated with lending transactions to exchange data quickly and efficiently. Our exposure to origination volumes is limited as our loan origination system revenues are based on closed loan volumes subject to minimum base software fees that are contractually obligated, and our secondary marketing technologies’ revenues are primarily subscription-based. Some of our origination software solutions are exposed to variances in origination volumes, primarily related to refinance volumes, due to the nature of the services provided. While we saw elevated refinance origination volumes for a prolonged period of time, we have seen lower origination volumes in 2022 due to record volumes in prior years and a rising interest rate environment. According to the July 2022 Mortgage Bankers Association Mortgage Finance Forecast, mortgage loan originations have declined 37% for the three months ended June 30, 2022 compared to the 2021 period. Our origination software solutions that are more sensitive to origination volumes were approximately 3% of our consolidated revenues for the three months ended June 30, 2022, and revenues related to these origination software solutions declined approximately 32% for the three months ended June 30, 2022 compared to the 2021 period, representing a headwind of approximately $5.6 million.
Data and Analytics
Our Data and Analytics segment offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, behavioral models, a multiple listing service software solution and other data solutions. Our data and analytics business is primarily based on longer-term strategic data licenses, other data licenses and subscription-based revenues. For both the three and six months ended June 30, 2022, our data and analytics revenues were 14% of our consolidated revenues. For both the three and six months ended June 30, 2021, our data and analytics revenues were 15% of our consolidated revenues. Our data and analytics solutions that are more sensitive to fluctuations in home buying activity and origination volumes primarily relate to services where we provide data necessary for title insurance and other settlement service activities. Revenues from these solutions were approximately 3% of our consolidated revenues for the three months ended June 30, 2022 and declined approximately 23% for the three months ended June 30, 2022 compared to the 2021 period, representing a headwind of approximately $3.1 million.
Results of Operations
Key Performance Metrics
Revenues, EBITDA and EBITDA margin for the Software Solutions and Data and Analytics segments are presented in conformity with Accounting Standards Codification Topic 280, Segment Reporting. These measures are reported to the chief operating decision maker for
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purposes of making decisions about allocating resources to the segments and assessing their performance. For these reasons, these measures are excluded from the definition of non-GAAP financial measures under the SEC’s Regulation G and Item 10(e) of Regulation S-K.
Consolidated Results of Operations
The following table presents certain financial data for the periods indicated (in millions, except per share data):
Three months ended June 30, | Six months ended June 30, |
| |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Revenues | $ | 394.5 | $ | 361.3 | $ | 781.7 | $ | 711.0 | |||||
Expenses: |
|
|
|
|
|
|
|
| |||||
Operating expenses |
| 216.8 |
| 197.0 |
| 424.7 |
| 383.2 | |||||
Depreciation and amortization |
| 92.5 |
| 90.4 |
| 184.0 |
| 178.2 | |||||
Transition and integration costs |
| 8.2 |
| 4.3 |
| 15.8 |
| 12.2 | |||||
Total expenses |
| 317.5 |
| 291.7 |
| 624.5 |
| 573.6 | |||||
Operating income |
| 77.0 |
| 69.6 |
| 157.2 |
| 137.4 | |||||
Operating margin |
| 19.5 | % |
| 19.3 | % |
| 20.1 | % |
| 19.3 | % | |
Interest expense, net |
| (22.6) |
| (20.9) |
| (43.7) |
| (41.2) | |||||
Other expense, net |
| (2.4) |
| (1.0) |
| (3.6) |
| (4.2) | |||||
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates |
| 52.0 |
| 47.7 |
| 109.9 |
| 92.0 | |||||
Income tax expense |
| 11.6 |
| 10.5 |
| 10.5 |
| 15.7 | |||||
Earnings before equity in (losses) earnings of unconsolidated affiliates |
| 40.4 |
| 37.2 |
| 99.4 |
| 76.3 | |||||
Equity in (losses) earnings of unconsolidated affiliates, net of tax |
| (0.1) |
| (5.0) |
| 303.0 |
| 1.4 | |||||
Net earnings |
| 40.3 |
| 32.2 |
| 402.4 |
| 77.7 | |||||
Net losses attributable to redeemable noncontrolling interests |
| — |
| 7.5 |
| 2.5 |
| 16.1 | |||||
Net earnings attributable to Black Knight | $ | 40.3 | $ | 39.7 | $ | 404.9 | $ | 93.8 | |||||
Net earnings per share attributable to Black Knight common shareholders: |
|
|
|
|
|
|
|
| |||||
Diluted | $ | 0.26 | $ | 0.25 | $ | 2.60 | $ | 0.60 | |||||
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
| |||||
Diluted |
| 155.6 |
| 155.7 |
| 155.5 |
| 155.8 | |||||
Segment Financial Results
Revenues
The following table sets forth revenues by segment for the periods presented (in millions):
Three months ended | Six months ended |
| |||||||||||||||||||||
June 30, | Variance | June 30, | Variance |
| |||||||||||||||||||
| 2022 |
| 2021 |
| $ | % |
| 2022 |
| 2021 |
| $ | % | ||||||||||
Software Solutions | $ | 339.4 | $ | 305.4 | $ | 34.0 | 11 | % | $ | 670.1 | $ | 601.2 | $ | 68.9 | 11 | % | |||||||
Data and Analytics |
| 55.1 |
| 55.9 |
| (0.8) | (1) | % |
| 111.6 |
| 109.8 |
| 1.8 | 2 | % | |||||||
Total | $ | 394.5 | $ | 361.3 | $ | 33.2 | 9 | % | $ | 781.7 | $ | 711.0 | $ | 70.7 | 10 | % | |||||||
Software Solutions
Revenues were $339.4 million in the three months ended June 30, 2022 compared to $305.4 million in the 2021 period, an increase of $34.0 million, or 11%. Our servicing software solutions revenues increased 7%, or $13.9 million, primarily driven by an increase of $5.5 million in foreclosure-related revenues due to the expiration of the foreclosure moratorium, revenues from new clients and sales of new innovative solutions. Our origination software solutions revenues increased 21%, or $20.1 million, primarily driven by higher revenues from new clients, revenues of $6.4 million related to acquired businesses, partially offset by the effect of lower refinance volumes on our Exchange and eLending platforms primarily as a result of a decline in refinancing origination volumes and attrition.
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Revenues were $670.1 million in the six months ended June 30, 2022 compared to $601.2 million in the 2021 period, an increase of $68.9 million, or 11%. Our servicing software solutions increased 8%, or $33.8 million, primarily driven by an increase of $13.6 million in foreclosure-related revenues due to the expiration of the foreclosure moratorium, revenues from new clients and sales of new innovative solutions. Our origination software solutions revenues increased 18%, or $35.1 million, primarily driven by higher revenues from new clients, revenues of $13.2 million related to acquired businesses, partially offset by the effect of lower refinance volumes on our Exchange and eLending platforms primarily as a result of a decline in refinancing origination volumes and attrition.
Data and Analytics
Revenues were $55.1 million in the three months ended June 30, 2022 compared to $55.9 million in the 2021 period, a decrease of $0.8 million, or 1%. The decrease was primarily driven by the effect of lower origination volumes, lower revenues related to a reduction in scope for two strategic data deal renewals and client attrition, partially offset by revenues from strong sales execution and new innovation solutions, professional services and $0.7 million related to an acquired business.
Revenues were $111.6 million in the six months ended June 30, 2022 compared to $109.8 million in the 2021 period, an increase of $1.8 million, or 2%. The increase was primarily driven by revenues from strong sales execution and new innovation solutions, partially offset by the effect of lower origination volumes and lower revenues related to a reduction in scope for two strategic data deal renewals.
EBITDA and EBITDA margin
The following tables set forth EBITDA (in millions) and EBITDA margin by segment for the periods presented:
Three months ended | Six months ended | |||||||||||
June 30, | Variance | June 30, | Variance | |||||||||
| 2022 |
| 2021 |
| Basis points |
| 2022 |
| 2021 |
| Basis points | |
Software Solutions |
| 56.2 | % | 57.2 | % | (100) |
| 56.5 | % | 57.5 | % | (100) |
Data and Analytics |
| 32.1 | % | 37.2 | % | (510) |
| 32.9 | % | 36.9 | % | (400) |
Software Solutions
EBITDA was $190.7 million in the three months ended June 30, 2022 compared to $174.8 million in the 2021 period, an increase of $15.9 million, or 9%, with an EBITDA margin of 56.2% compared to 57.2% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and increased investments in innovation and client support as well as higher sales and marketing costs as we return to a more normal operating environment following the pandemic.
EBITDA was $378.9 million in the six months ended June 30, 2022 compared to $345.7 million in the 2021 period, an increase of $33.2 million, or 10%, with an EBITDA margin of 56.5% compared to 57.5% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and increased investments in innovation and client support as well as higher sales and marketing costs as we return to a more normal operating environment following the pandemic.
Data and Analytics
EBITDA was $17.7 million in the three months ended June 30, 2022 compared to $20.8 million in the 2021 period, a decrease of $3.1 million, or 15%, with an EBITDA margin of 32.1% compared to 37.2% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and higher sales and marketing and personnel costs.
EBITDA was $36.7 million in the six months ended June 30, 2022 compared to $40.5 million in the 2021 period, a decrease of $3.8 million, or 9%, with an EBITDA margin of 32.9% compared to 36.9% in the 2021 period. The EBITDA margin decrease was primarily driven by revenue mix and higher sales and marketing and personnel costs.
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Consolidated Financial Results
Operating Expenses
The following table sets forth operating expenses by segment for the periods presented (in millions):
Three months ended | Six months ended |
| |||||||||||||||||||||
June 30, | Variance | June 30, | Variance |
| |||||||||||||||||||
| 2022 |
| 2021 |
| $ | % | 2022 |
| 2021 |
| $ | % |
| ||||||||||
Software Solutions | $ | 148.7 | $ | 130.6 | $ | 18.1 | 14 | % | $ | 291.2 | $ | 255.5 | $ | 35.7 | 14 | % | |||||||
Data and Analytics |
| 37.4 |
| 35.1 |
| 2.3 | 7 | % |
| 74.9 |
| 69.3 |
| 5.6 | 8 | % | |||||||
Corporate and Other(1) |
| 30.7 |
| 31.3 |
| (0.6) | (2) | % |
| 58.6 |
| 58.4 |
| 0.2 | 0 | % | |||||||
Total | $ | 216.8 | $ | 197.0 | $ | 19.8 | 10 | % | $ | 424.7 | $ | 383.2 | $ | 41.5 | 11 | % | |||||||
| (1) | Operating expenses for Corporate and Other include equity-based compensation, including certain related payroll taxes, of $13.0 million and $13.2 million for the three months ended June 30, 2022 and 2021, respectively, and $24.2 million and $23.7 million for the six months ended June 30, 2022 and 2021, respectively. |
The increase in Operating expenses in the three months ended June 30, 2022 compared to the 2021 period was primarily driven by higher net personnel expenses, including the effect of wage inflation above our typical annual increases, increases in sales and marketing costs, partially offset by lower lease costs.
The increase in Operating expenses in the six months ended June 30, 2022 compared to the 2021 period was primarily driven by higher net personnel expenses, including the effect of wage inflation above our typical annual increases, increases in sales and marketing costs, partially offset by lower lease costs.
Depreciation and Amortization
The following table sets forth depreciation and amortization by segment for the periods presented (in millions):
Three months ended | Six months ended |
| |||||||||||||||||||||
June 30, | Variance | June 30, | Variance |
| |||||||||||||||||||
| 2022 |
| 2021 |
| $ | % | 2022 |
| 2021 |
| $ | % |
| ||||||||||
Software Solutions | $ | 35.9 | $ | 33.2 | $ | 2.7 | 8 | % | $ | 71.0 | $ | 64.4 | $ | 6.6 | 10 | % | |||||||
Data and Analytics |
| 4.0 |
| 3.7 |
| 0.3 | 8 | % |
| 7.8 |
| 7.5 |
| 0.3 | 4 | % | |||||||
Corporate and Other(1) |
| 52.6 |
| 53.5 |
| (0.9) | (2) | % |
| 105.2 |
| 106.3 |
| (1.1) | (1) | % | |||||||
Total | $ | 92.5 | $ | 90.4 | $ | 2.1 | 2 | % | $ | 184.0 | $ | 178.2 | $ | 5.8 | 3 | % | |||||||
| (1) | Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP. |
The increase in Depreciation and amortization in the three and six months ended June 30, 2022 compared to the respective 2021 periods is primarily related to the amortization of software and deferred contract costs, partially offset by lower amortization of other intangible assets.
Transition and Integration Costs
Transition and integration costs were $8.2 million in the three months ended June 30, 2022 compared to $4.3 million in the 2021 period. Transition and integration costs were $15.8 million in the six months ended June 30, 2022 compared to $12.2 million in the 2021 period. Transition and integration costs for the three months ended June 30, 2022 primarily consisted of costs related to the ICE Transaction. Transition and integration costs in the 2022 and 2021 periods also consisted of costs associated with acquisitions, including costs pursuant to purchase agreements and expense reduction initiatives.
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Interest Expense, Net
Interest expense, net was $22.6 million in the three months ended June 30, 2022 compared to $20.9 million in the 2021 period, an increase of $1.7 million, or 8%. Interest expense, net was $43.7 million in the six months ended June 30, 2022 compared to $41.2 million in the 2021 period, an increase of $2.5 million, or 6%. The increase was primarily driven by our higher average outstanding debt balances and higher interest rates.
Other Expense, Net
Other expense, net was $2.4 million in the three months ended June 30, 2022 compared to $1.0 million in the 2021 period. Other expense, net was $3.6 million in the six months ended June 30, 2022 compared to $4.2 million in the 2021 period. The 2022 amounts are primarily related to legal fees. The 2021 amounts are primarily related to the debt refinancing in March 2021 and legal fees.
Income Tax Expense
Income tax expense was $11.6 million in the three months ended June 30, 2022 compared to $10.5 million in the 2021 period. Our effective tax rate was 22.3% in the 2022 period compared to 22.0% in 2021. Our effective tax rates for the three months ended June 30, 2022 and 2021 includes the effect of research and experimentation tax credits. Our effective tax rate for the three months ended June 30, 2021 also includes the effect of tax benefits relating to the vesting of restricted shares of common stock.
Income tax expense was $10.5 million in the six months ended June 30, 2022 compared to $15.7 million in the 2021 period. Our effective tax rate was 9.6% in the 2022 period compared to 17.1% in the 2021 period. Our effective tax rate for the six months ended June 30, 2022 includes the effect of a $14.1 million discrete income tax benefit related to the establishment of a deferred tax asset as a result of our reorganization of certain wholly-owned subsidiaries within the Optimal Blue partnership investment structure. Our effective tax rate for the six months ended June 30, 2021 differs from our statutory rate primarily due to the effect of excess tax benefits relating to the vesting of restricted shares of our common stock and research and experimentation tax credits.
Equity in (Losses) Earnings of Unconsolidated Affiliates, Net of Tax
Equity in (losses) earnings of unconsolidated affiliates, net of tax consists of the following (in millions):
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Equity in losses of unconsolidated affiliates, net of tax | $ | (0.1) | $ | (5.0) | $ | (2.4) | $ | (8.5) | ||||
Non-cash gain related to DNB's issuance of common stock, net of tax |
| — |
| — |
| — |
| 9.9 | ||||
Gain related to DNB investment, net of tax | — | — | 305.4 | — | ||||||||
Equity in (losses) earnings of unconsolidated affiliates, net of tax | $ | (0.1) | $ | (5.0) | $ | 303.0 | $ | 1.4 | ||||
Refer to Note 4 — Investments in Unconsolidated Affiliates in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2 for additional information.
Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash balances, cash flows from operations and borrowings on our revolving credit facility. As of June 30, 2022, we had cash of $38.0 million, debt principal of $2,788.1 million and available capacity of $353.3 million on our revolving credit facility.
As of June 30, 2022, we own 18.5 million shares of DNB common stock for an ownership interest in DNB of approximately 4.3% of DNB’s outstanding common stock. As of June 30, 2022, DNB’s closing share price was $15.03 and the fair value of our investment in DNB was $277.7 million before tax. Assuming a statutory tax rate of 25.3%, the estimated after-tax value of our investment in DNB is $249.4 million. Refer to Note 4 — Investments in Unconsolidated Affiliates in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information.
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Our primary cash requirements include operating expenses, debt service payments (principal and interest), capital expenditures (including software development, equipment and property related expenditures) and tax-related payments and may include business acquisitions and share repurchases.
We believe that our cash flows from operations and available cash and cash equivalents are sufficient to meet our liquidity needs, including the repayment of our outstanding debt, for at least the next 12 months. We anticipate that to the extent we require additional liquidity, it will be funded through borrowings on our revolving credit facility, the incurrence of other indebtedness, the sale of DNB common stock, equity issuance or a combination thereof. The loss of the largest lender on our revolving credit facility would reduce our borrowing capacity by $90.0 million. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot be assured that our business will generate sufficient cash flows from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or issue additional equity to finance such acquisitions.
As of June 30, 2022, our income tax payable was $46.8 million compared to $11.8 million as of December 31, 2021. The increase is primarily related to the income taxes owed as a result of the shares of DNB common stock that we exchanged as part of the aggregate consideration for acquiring the remaining outstanding Class A Units in Optimal Blue Holdco from Cannae and THL. Refer to Note 1 — Basis of Presentation and Overview for additional information. Additionally, the Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 174 (“Section 174”) to eliminate current-year deductibility of research and experimentation expenditures and software development costs beginning in 2022, and now requires these costs to be capitalized and amortized over a period of time. The effect of the change in timing of deducting certain costs under Section 174 resulted in higher income tax payments in 2022.
The CARES Act allows us to defer payments of our share of social security taxes until December 31, 2022. As of June 30, 2022, we have deferred $7.6 million of payments related to employer social security taxes.
Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in millions):
Six months ended June 30, | |||||||||
| 2022 |
| 2021 |
| Variance | ||||
Cash flows provided by operating activities | $ | 89.8 | $ | 199.2 | $ | (109.4) | |||
Cash flows used in investing activities |
| (59.5) |
| (116.4) |
| 56.9 | |||
Cash flows used in financing activities |
| (69.4) |
| (28.8) |
| (40.6) | |||
Net (decrease) increase in cash and cash equivalents | $ | (39.1) | $ | 54.0 | $ | (93.1) | |||
Operating Activities
The $109.4 million decrease in cash provided by operating activities in the six months ended June 30, 2022 compared to the 2021 period is primarily related to an increase in income tax payments of $81.6 million primarily related to the gain on our investment in DNB and the effect of the change in timing of deducting certain costs under Section 174, higher incentive compensation payments and a performance-based payment related to a prior acquisition, partially offset by higher operating income.
Investing Activities
The $56.9 million decrease in cash used in investing activities in the six months ended June 30, 2022 compared to the 2021 period is primarily related to business and asset acquisitions in the prior year period.
Financing Activities
The $40.6 million increase in cash used in financing activities in the six months ended June 30, 2022 compared to the 2021 period is primarily related to the cash paid as part of the aggregate purchase consideration for acquiring the remaining outstanding Class A Units of Optimal Blue Holdco from Cannae and THL, partially offset by higher net borrowings and share repurchases in the prior year period.
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Financing
For a description of our financing arrangements, see Note 7 — Long-Term Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2.
Contractual Obligations
Our long-term contractual obligations generally include our debt and related interest payments, software subscription, cloud computing and hardware and software maintenance commitments and operating and finance lease payments for our offices, data centers, property and equipment. There were no significant changes to our contractual obligations from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021. Our interest rate swaps represent our material off-balance sheet arrangements.
Share Repurchase Program
On February 12, 2020, our Board of Directors approved a three-year share repurchase program authorizing us to repurchase up to 10.0 million shares of our outstanding common stock through February 12, 2023, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. Refer to Note 12 — Equity in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2.
Indemnifications and Warranties
We often agree to indemnify our clients against damages and costs resulting from claims of patent, copyright, trademark infringement or breaches of confidentiality associated with use of our software through software licensing agreements. Historically, we have not made any payments under such indemnifications, but continue to monitor the conditions that are subject to the indemnifications to identify whether a loss has occurred that is both probable and estimable that would require recognition. In addition, we warrant to clients that our software operates substantially in accordance with the software specifications. Historically, no costs have been incurred related to software warranties and none are expected in the future, and as such no accruals for warranty costs have been made.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market Risk
We regularly assess market risks and have established policies and business practices designed to protect against the adverse effects of these exposures. We are exposed to market risks primarily from changes in interest rates. We use interest rate swaps to manage interest rate risk. We do not use interest rate swaps for trading purposes, to generate income or to engage in speculative activity.
Interest Rate Risk
In addition to existing cash balances and cash provided by operating activities, we use fixed and variable rate debt to finance our operations.
Our Senior Notes represent our fixed-rate long-term debt. Refer to Note 7 — Long-Term Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q. The carrying value of our Senior Notes was $990.4 million as of June 30, 2022. The fair value of our Senior Notes was approximately $870.0 million as of June 30, 2022. The potential reduction in fair value of the Senior Notes from a hypothetical 10 percent increase in market interest rates would not be material to the overall fair value of the debt.
We enter into interest rate swap agreements to hedge forecasted monthly interest rate payments on our variable rate debt. We are exposed to interest rate risk on our variable rate debt obligations and related interest rate swaps. As of June 30, 2022, we had $1,782.3 million in
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long-term debt principal outstanding from our Facilities, all of which is variable rate debt, as described in Note 7 — Long-Term Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q.
As of June 30, 2022, the Facilities represent our long-term debt obligations exposed to interest rate risk. We performed a sensitivity analysis on the principal amount of debt as of June 30, 2022, as well as the effect of our interest rate swaps. Further, in this sensitivity analysis, the change in interest rates is assumed to be applicable for an entire year. An increase or decrease of 100 basis points in the applicable interest rate would cause an increase or decrease in interest expense of $17.8 million on an annual basis ($14.0 million including the effect of our current interest rate swaps) as the 1-week and 1-month LIBOR were approximately 1.59% and 1.67%, respectively, as of June 30, 2022.
As of June 30, 2022, we have the following interest rate swap agreements (collectively, the "Swap Agreements") (in millions):
Effective dates |
| Notional amount |
| Fixed rates | ||
April 30, 2018 through April 30, 2023 | $ | 250.0 |
| 2.61 | % | |
January 31, 2019 through January 31, 2023 | $ | 300.0 |
| 2.65 | % | |
Under the terms of the Swap Agreements, we receive payments based on the 1-month LIBOR rate (approximately 1.67% as of June 30, 2022).
During six months ended June 30, 2022, the following interest rate swap agreement expired (in millions):
Effective dates |
| Notional amount |
| Fixed rate | ||
March 31, 2017 through March 31, 2022 | $ | 200.0 |
| 2.08 | % | |
The Swap Agreements were designated as cash flow hedging instruments. A portion of the amount included in Accumulated other comprehensive loss is reclassified into Interest expense, net as a yield adjustment as interest is either paid or received on the hedged debt. The inputs used to determine the estimated fair value of our interest rate swaps are Level 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 30, 2022, under the supervision and with the participation of our Chief Executive Officer ("CEO") and President and Chief Financial Officer ("CFO"), management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.
Based on that evaluation, our CEO and CFO concluded that as of June 30, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit with the SEC are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2022 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II: OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of legal proceedings in Note 10 — Commitments and Contingencies in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Item 1 of Part II.
Item 1A. Risk Factors
In addition to the significant risks and uncertainties listed under Item 1A- “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified the following additional risks during the six months ended June 30, 2022. There have been no other material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2021.
Risks Related to the Proposed Merger with Intercontinental Exchange, Inc. (“ICE”)
Because the market price of ICE common stock may fluctuate, holders of our common stock cannot be certain of the market value of the consideration they will receive in the Merger.
Pursuant to and subject to the terms of the Agreement and Plan of Merger dated as of May 4, 2022 (the “Merger Agreement”) with ICE, a wholly-owned subsidiary of ICE (“Sub”) will merge with and into Black Knight with Black Knight surviving as a wholly-owned subsidiary of ICE (the “Merger”). At the effective time of the Merger (the “Effective Time”), each share of our common stock issued and outstanding immediately prior to the Effective Time (other than shares of our common stock held by us as treasury stock, any of our subsidiaries (other than with respect to the Black Knight Employee Stock Purchase Plan), by ICE or any of ICE’s subsidiaries (including Sub), or by any holder who has properly exercised and perfected such holder’s demand for appraisal rights under Section 262 of the General Corporation Law of the State of Delaware and not effectively withdrawn or lost such holder’s rights to appraisal (collectively, “Excluded Shares”)) will be converted into the right to receive, at the election of the holder thereof, the following consideration (the “Merger Consideration”):
| ● | (i) an amount in cash equal to the sum, rounded to the nearest one tenth of a cent, of (x) $68.00 plus (y) the product, rounded to the nearest one tenth of a cent, of 0.1440 (the “Share Ratio”) multiplied by the average of the volume weighted averages of the trading prices of ICE common stock on the New York Stock Exchange on each of the ten consecutive trading days ending on (and including) the trading day that is three trading days prior to the date on which the Effective Time occurs (the “Average ICE Stock Price”) (such amount, the “Per Share Cash Consideration”); |
| ● | (ii) a number of validly issued, fully paid and nonassessable shares of ICE common stock as is equal to the quotient, rounded to the nearest one ten thousandth, of (x) the Per Share Cash Consideration divided by (y) the Average ICE Stock Price (such number of shares, the “Per Share Stock Consideration”); or |
| ● | (iii) if no election is made by such holder, such Per Share Stock Consideration or Per Share Cash Consideration as is determined in accordance with the proration mechanism described below. |
The election right for the holders of shares of our common stock will be subject to proration in accordance with the terms of the Merger Agreement such that (a) the total number of shares of our common stock to be converted into the right to receive the Per Share Cash Consideration will be equal to the quotient, rounded down to the nearest whole share, of $10,505,000,000 divided by the Per Share Cash Consideration and (b) all shares of our common stock not receiving the Per Share Cash Consideration (other than Excluded Shares) will be converted into the right to receive the Per Share Stock Consideration.
This Share Ratio is fixed and will not be adjusted for changes in the market price of either ICE common stock or our common stock. Changes in the price of ICE common stock prior to the Merger will affect the value that holders of our common stock will receive in the Merger. We and ICE are not permitted to terminate the Merger Agreement as a result, in and of itself, of any increase or decrease in the market price of ICE common stock or our common stock.
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There will be a time lapse between the date on which our stockholders vote to approve the Merger Agreement at the special meeting and the date on which our stockholders entitled to receive the Merger Consideration actually receive such consideration. The market value of ICE common stock may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, regulatory considerations, including changes in U.S. monetary policy and its effect on global financial markets and on interest rates, changes in ICE’s or our business, operations and prospects, the global coronavirus pandemic and the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on ICE, us or the customers or other constituencies of ICE or us, many of which factors are beyond ICE’s or our control. Therefore, at the time our stockholders must decide whether to approve the Merger Agreement at the special meeting, they will not know the market value of the consideration to be received by holders of our common stock at the Effective Time of the Merger.
The Merger will not be completed unless important conditions are satisfied or waived, including approval of the Merger Agreement by our stockholders.
Specified conditions set forth in the Merger Agreement must be satisfied or waived to complete the Merger. If the conditions are not satisfied or, to the extent permitted by law, waived, the Merger will not occur or will be delayed, and we and ICE may lose some or all of the intended benefits of the Merger. The following conditions must be satisfied or, to the extent permitted by law, waived before we and ICE are obligated to complete the Merger: (i) the adoption of the Merger Agreement by the affirmative vote of holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting, (ii) the expiration or early termination of the waiting period applicable to the consummation of the Merger under the HSR Act, (iii) the absence of any Restraint that is in effect and restrains, enjoins or otherwise prohibits the consummation of the Merger, (iv) the effectiveness of the registration statement on Form S-4 filed by ICE to register the shares of ICE common stock to be issued in the Merger, (v) approval for listing on the NYSE of the shares of ICE common stock to be issued in the Merger, (vi) compliance by ICE and us in all material respects with their respective obligations under the Merger Agreement that are required to be performed or complied with by the time of the closing and (vii) subject in most cases to exceptions that do not rise to the level of a Material Adverse Effect or a Parent Material Adverse Effect (each as defined in the Merger Agreement), the accuracy of representations and warranties made by us, respectively, in the Merger Agreement. The respective obligations of ICE and us to consummate the Merger are also subject to there not having occurred since the date of the Merger Agreement an event that has had or would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect or a Material Adverse Effect, respectively.
If the Merger is not completed, each of ICE’s and our ongoing businesses, financial condition, financial results and stock price may be materially and adversely affected and, without realizing any of the benefits of having completed the Merger, ICE and we will be subject to a number of risks, including the following:
| ● | the market price of our common stock or ICE common stock could decline to the extent the current market price reflects an assumption that the Merger will be completed; |
| ● | ICE or we could owe a termination fee to the other party under certain circumstances; |
| ● | if our Board of Directors seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that ICE has agreed to in the Merger Agreement; |
| ● | time and financial and other resources committed by ours and ICE’s management to matters relating to the Merger could otherwise have been devoted to pursing other beneficial opportunities; |
| ● | ICE or we may experience negative reactions from the financial markets or from their customers, suppliers or employees; |
| ● | ICE or our current and prospective employees may experience uncertainty about their roles following the completion of the Merger, which may have an adverse effect on ICE’s or our ability to attract or retain key management and other key personnel; |
| ● | ICE and we will be required to pay costs relating to the Merger, such as legal, accounting, financial advisory, financing (including the redemption by ICE of $5 billion of its bonds at 101% of par value) and printing fees, whether or not the Merger is completed; and |
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| ● | ICE or we could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against ICE or us to perform our respective obligations under the Merger Agreement. |
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, that could have an adverse effect on ICE following the Merger or that are otherwise unacceptable to ICE.
Completion of the Merger is conditioned on, among other things, the expiration or early termination of the waiting period applicable to the consummation of the Merger under the HSR Act. There can be no assurance that this condition to the completion of the Merger will be satisfied on a timely basis or at all and there can be no assurance that, if regulatory approvals are granted, they will not result in the imposition of conditions, limitations, obligations or restrictions that have the effect of preventing the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of ICE following the Merger or otherwise reducing the anticipated benefits of the Merger, or result in the delay or abandonment of the Merger.
Under the Merger Agreement, ICE and we have agreed to use our respective reasonable best efforts to cause the transactions contemplated by the Merger Agreement to be consummated as soon as practicable and to obtain all approvals from any governmental entity or third party that are necessary, proper or advisable to consummate the Merger. In particular, each party has agreed to use its reasonable best efforts to take promptly any and all steps necessary to avoid, eliminate or resolve each and every impediment and obtain all clearances, consents, approvals and waivers under U.S. antitrust laws so as to enable the parties to close the Merger as soon as practicable.
The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us.
The Merger Agreement contains covenants that restrict our ability to, directly or indirectly, solicit, initiate, knowingly facilitate, knowingly encourage or knowingly induce any acquisition proposal, engage in any discussions or negotiations with any person relating to any takeover proposal, or provide any confidential or nonpublic information or data to any person relating to any takeover proposal, subject to certain exceptions. In addition, subject to certain exceptions, our Board of Directors is required to recommend that our stockholders adopt the Merger Agreement.
If the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee of $398 million to ICE or we may be required to reimburse ICE for its reasonable and documented out-of-pocket costs and expenses incurred in connection with the Merger Agreement and the Merger in an amount not to exceed $40 million.
These provisions could discourage a potential third-party acquiror or Merger partner that might have an interest in acquiring all or a significant portion of us or pursuing an alternative transaction from considering or proposing such a transaction
If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed, which could negatively affect us.
The Merger Agreement is subject to a number of conditions which must be satisfied or waived in order to complete the Merger. These conditions to the closing of the Merger may not be satisfied in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed. In addition, if the Merger is not completed by the outside date, either ICE or we may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after receipt of our stockholder approval. In addition, ICE or we may elect to terminate the Merger Agreement in certain other circumstances as set forth in the Merger Agreement.
If the Merger Agreement is terminated, there may be various consequences. For example, our business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Additionally, if the Merger Agreement is terminated, the market price of our common stock could decline to the extent that the current market prices reflect a market assumption that the Merger will be completed. If the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee of $398 million to ICE. In
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addition, if the Merger Agreement is terminated because our stockholders fail to approve the Merger proposal at a duly convened meeting of our stockholders held for that purpose, we will be required to reimburse ICE for its reasonable and documented out-of-pocket costs and expenses incurred in connection with the Merger Agreement and the Merger in an amount not to exceed $40 million.
We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business and operations.
In connection with the pendency of the Merger, it is possible that some customers, suppliers and other persons with whom we and/or ICE have a business relationship may delay or defer certain business decisions or decide to seek to terminate, change or renegotiate their relationships with ICE or us, as the case may be, as a result of the pending Merger or otherwise, which could negatively affect ICE’s or our respective revenues, earnings and/or cash flows, as well as the market price of ICE’s or our common stock, regardless of whether the Merger is completed.
Under the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Merger which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could adversely affect our business and operations prior to the completion of the Merger.
Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the Merger.
In addition, subject to certain exceptions, we have agreed to use reasonable best efforts to carry on our business in the ordinary course and, to the extent consistent therewith, to use reasonable best efforts to preserve substantially intact our current business organizations, to keep available the services of our current officers and employees and to preserve our relationships with significant customers, suppliers, licensors, licensees, distributors, lessors and others having significant business dealings with us, in each case, during the period between the date of the Merger Agreement and the closing of the Merger.
Uncertainties associated with the Merger may cause a loss of our management personnel and other key employees, which could adversely affect our business and operations.
ICE and we are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. Prior to completion of the Merger, current and prospective employees of our and ICE may experience uncertainty about their roles within ICE following the completion of the Merger, which may have an adverse effect on ICE’s and our ability to attract or retain key management and other key personnel and could adversely affect our business and operations.
Litigation related to the Merger could prevent or delay completion of the Merger or otherwise negatively affect ICE’s and our businesses and operations.
ICE and we may incur costs in connection with the defense or settlement of any stockholder or other lawsuits filed in connection with the Merger. Such litigation could have an adverse effect on ICE’s and our financial condition and results of operations and could prevent or delay the completion of the Merger.
ICE and we are expected to incur significant costs related to the Merger and integration.
ICE and we have incurred and expect to incur substantial expenses in connection with the completion of the Merger. The substantial majority of these costs will be non-recurring expenses related to the Merger, including investment banking fees, legal fees and costs associated with financing the Merger, accounting, accounting, consulting and other advisory fees, severance/employee benefit-related costs, and other regulatory fees. ICE and we will also incur transaction fees and costs related to formulating integration plans for our combined mortgage services businesses. Some of these costs are payable regardless of whether the Merger is completed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| (a) | Exhibits |
Exhibit |
|
|
No. | Description | |
2.1 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document** | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
104 | Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101 |
(1) A management or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 601(b)(10)(ii) of Regulation S-K.
* | Schedules omitted pursuant to Item 601(a)(5) of Regulation S-K. We agree to furnish supplementally a copy of any omitted schedule to the SEC upon request; provided, however, that we may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished. |
** | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BLACK KNIGHT, INC. | ||
(registrant) | ||
Date: August 4, 2022 | By: | /s/ Kirk T. Larsen |
Kirk T. Larsen | ||
President and Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
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Exhibit 10.1
Black Knight, Inc.
Amended and Restated
2015 Omnibus Incentive Plan
Notice of Restricted Stock Grant
You (the “Grantee”) have been granted the following award of restricted Shares of common stock (the “Restricted Stock”), par value $0.0001 per share (the “Shares”), by Black Knight, Inc. (the “Company”), pursuant to the Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan (the “Plan”) and the terms set forth in the attached Restricted Stock Award Agreement:
Name of Grantee: | Participant Name |
Number of Shares of Restricted Stock Granted: | Number of Awards Granted |
Effective Date of Grant: | Grant Date |
Vesting and Period of Restriction: | Subject to the terms of the Plan and the Restricted Stock Award Agreement attached hereto, the Period of Restriction shall lapse, and the Shares shall vest and become free of the forfeiture provisions contained in the Restricted Stock Award Agreement, with respect to one-third of the shares on each of the first three anniversaries of the Effective Date of Grant as set forth on Exhibit A of the Restricted Stock Award Agreement, attached hereto. |
By your electronic acceptance/signature below, you agree and acknowledge that the Restricted Stock is granted under and governed by the terms and conditions of the Plan and the attached Restricted Stock Award Agreement, which are incorporated herein by reference, and that you have been provided with a copy of the Plan and Restricted Stock Award Agreement. If you have not accepted or declined this Restricted Stock Grant, including the terms of this Notice and Restricted Stock Award Agreement, prior to the first vesting date of the Effective Date of Grant, you are hereby advised and acknowledge that you shall be deemed to have accepted the terms of this Notice and Restricted Stock Award Agreement on such first vesting date of the Effective Date of Grant.
Electronic SignatureElectronic Signature
Acceptance DateAcceptance Date
Black Knight, Inc.
Amended and Restated 2015 Omnibus Incentive Plan
Restricted Stock Award Agreement
(Subject to Time-Based Restriction)
| Section 1. | GRANT OF RESTRICTED STOCK |
| Section 2. | FORFEITURE AND TRANSFER RESTRICTIONS |
(A x B) – C, where
A = the total number of Shares granted under this Agreement,
B = the number of completed months to the date of termination since the Effective Date of Grant divided by 36, and
C = the number of Shares granted under this Agreement which vested on or prior to the date of termination.
All Shares that are subject to a Period of Restriction on the date of termination of employment or service as a Director or Consultant and which will not be vested pursuant to Section 2(a)(ii) above, shall be forfeited to the Company, for no consideration.
| Section 3. | STOCK CERTIFICATES |
As soon as practicable following the grant of Restricted Stock, the Shares of Restricted Stock shall be registered in the Grantee’s name in certificate or book-entry form. If a certificate is issued, it shall bear an appropriate legend referring to the restrictions and it shall be held by the Company, or its agent, on behalf of the Grantee until the Period of Restriction has lapsed. If the Shares are registered in book-entry form, the restrictions shall be placed on the book-entry registration. The Grantee may be required to execute and return to the Company a blank stock power for each Restricted Stock certificate (or instruction letter, with respect to Shares registered in book-entry form), which will permit transfer to the Company, without further action, of all or any portion of the Restricted Stock that is forfeited in accordance with this Agreement.
Except for the transfer and dividend restrictions, and subject to such other restrictions, if any, as determined by the Committee, the Grantee shall have all other rights of a holder of Shares, including the right to vote (or to execute proxies for voting) such Shares. Unless otherwise determined by the Committee, if all or part of a dividend in respect of the Restricted Stock is paid in Shares or any other security issued by the Company, such Shares or other securities shall be held by the Company subject to the same restrictions as the Restricted Stock in respect of which the dividend was paid.
| Section 5. | DIVIDENDS |
| Section 6. | MISCELLANEOUS PROVISIONS |
EXHIBIT A
Vesting and Restrictions
This grant is subject to Time-Based Restrictions, as described below. The period between the Effective Date of Grant and the applicable Vesting Date of a Share of Restricted Stock is the “Period of Restriction” for such Share of Restricted Stock.
Time-Based Restrictions
In order for the Restricted Stock to vest on any Vesting Date, unless otherwise provided in the Agreement, the Grantee must satisfy the continued service conditions set forth in Section 2 of the Agreement (the “Time-Based Restrictions”) as of the applicable Vesting Date.
Vesting Date | % of Restricted Stock |
First (1st) anniversary of the Effective Date of Grant | 33.34% |
Second (2nd) anniversary of the Effective Date of Grant | 33.33% |
Third (3rd) anniversary of the Effective Date of Grant | 33.33% |
Vesting
If the applicable Time-Based Restriction has been achieved as of a Vesting Date, the percentage of the Restricted Stock indicated on the row for such Vesting Date in the table above shall vest.
Exhibit 10.2
Black Knight, Inc.
Amended and Restated 2015 Omnibus Incentive Plan
Notice of Restricted Stock Grant
You (the “Grantee”) have been granted the following award of restricted Shares of common stock (the “Restricted Stock”), par value $0.0001 per share (the “Shares”), by Black Knight, Inc. (the “Company”), pursuant to the Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan (the “Plan”) and the terms set forth in the attached Restricted Stock Award Agreement:
Name of Grantee: | Participant Name |
Number of Shares of Restricted Stock Granted: | Number of Awards Granted |
Effective Date of Grant: | Grant Date |
Vesting and Period of Restriction: | Subject to the terms of the Plan and the Restricted Stock Award Agreement attached hereto, the Period of Restriction shall lapse, and the Shares shall vest and become free of the forfeiture provisions contained in the Restricted Stock Award Agreement, with respect to 100% of the shares on the earliest to occur of (i) the first anniversary of the Effective Date of Grant, (ii) the date of the Company’s 2023 Annual Meeting of Shareholders and (iii) a Change in Control (such earliest date, the “Vesting Date”). |
By your electronic acceptance/signature below, you agree and acknowledge that the Restricted Stock is granted under and governed by the terms and conditions of the Plan and the attached Restricted Stock Award Agreement, which are incorporated herein by reference, and that you have been provided with a copy of the Plan and Restricted Stock Award Agreement. If you have not accepted or declined this Restricted Stock Grant, including the terms of this Notice and Restricted Stock Award Agreement, prior to the Vesting Date, you are hereby advised and acknowledge that you shall be deemed to have accepted the terms of this Notice and Restricted Stock Award Agreement on such Vesting Date.
Electronic SignatureElectronic Signature
Acceptance DateAcceptance Date
Black Knight, Inc.
Amended and Restated 2015 Omnibus Incentive Plan
Restricted Stock Award Agreement
(Directors)
| Section 1. | GRANT OF RESTRICTED STOCK |
| Section 2. | FORFEITURE AND TRANSFER RESTRICTIONS |
(A x B) – C, where
A = the total number of Shares granted under this Agreement,
B = the number of completed months to the date of termination since the Effective Date of Grant divided by 12, and
C = the number of Shares granted under this Agreement which vested on or prior to the date of termination.
All Shares that are subject to a Period of Restriction on the date of termination of employment or service as a Director or Consultant and which will not be vested pursuant to Section 2(a)(ii) above, shall be forfeited to the Company, for no consideration.
| Section 3. | STOCK CERTIFICATES |
As soon as practicable following the grant of Restricted Stock, the Shares of Restricted Stock shall be registered in the Grantee’s name in certificate or book-entry form. If a certificate is issued, it shall bear an appropriate legend referring to the restrictions and it shall be held by the Company, or its agent, on behalf of the Grantee until the Period of Restriction has lapsed. If the Shares are registered in book-entry form, the restrictions shall be placed on the book-entry registration. The Grantee may be required to execute and return to the Company a blank stock power for each Restricted Stock certificate (or instruction letter, with respect to Shares registered in book-entry form), which will permit transfer to the Company, without further action, of all or any portion of the Restricted Stock that is forfeited in accordance with this Agreement.
Except for the transfer and dividend restrictions, and subject to such other restrictions, if any, as determined by the Committee, the Grantee shall have all other rights of a holder of Shares, including the right to vote (or to execute proxies for voting) such Shares. Unless otherwise determined by the Committee, if all or part of a dividend in respect of the Restricted Stock is paid in Shares or any other security issued by the Company, such Shares or other securities shall be held by the Company subject to the same restrictions as the Restricted Stock in respect of which the dividend was paid.
| Section 5. | DIVIDENDS |
| Section 6. | MISCELLANEOUS PROVISIONS |
Exhibit 10.3
Black Knight, Inc.
Amended and Restated 2015 Omnibus Incentive Plan
Notice of Restricted Stock Unit Grant
(Subject to Time-Based Restrictions)
You (the “Grantee”) have been granted the following restricted stock units (“Restricted Stock Units” or “RSUs”), by Black Knight, Inc. (the “Company”), pursuant to the Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan (the “Plan”). Each RSU represents the right to receive, in accordance with the attached Restricted Stock Unit Award Agreement, one share of common stock of the Company, having a par value of $0.0001 per share (a “Share”).
Name of Grantee: | Participant Name |
Total Number of RSUs: | Number of Awards Granted |
Effective Date of Grant: | Grant Date |
Period of Restriction and Vesting: | Subject to the terms of the Plan and the attached Restricted Stock Unit Award Agreement, the Period of Restriction shall lapse, and the RSUs shall vest on the earliest to occur of (i) the first anniversary of the Effective Date of Grant, (ii) the date of the Company’s 2023 Annual Meeting of Shareholders and (iii) a Change in Control (such earliest date, the “Vesting Date”). |
RSU Settlement Date | Subject to the terms of the Plan and the attached Restricted Stock Unit Award Agreement, as soon as practicable (and in all events within 30 days) after the Grantee’s Separation from Service (as that term is defined in the attached Restricted Stock Unit Award Agreement), one Share will be issued for each Restricted Stock Unit Award that vests. |
By your electronic acceptance/signature, you agree and acknowledge that the Restricted Stock Units are granted under and governed by the terms and conditions of the Plan and the attached Restricted Stock Unit Award Agreement, which are incorporated herein by reference, and that you have been provided with a copy of the Plan and the Restricted Stock Unit Award Agreement and the Appendices to the Restricted Stock Unit Award Agreement. If you have not accepted or declined this Restricted Stock Unit Award, including the terms of this Notice and Restricted Stock Award Agreement, prior to the Vesting Date, you are hereby advised and acknowledge that you shall be deemed to have accepted the terms of this Notice and Restricted Stock Award Agreement on such Vesting Date.
Electronic SignatureElectronic Signature
Acceptance DateAcceptance Date
Black Knight, Inc.
Amended and Restated 2015 Omnibus Incentive Plan
Restricted Stock Unit Award Agreement
(Subject to Time-Based Restrictions)
| Section 1. | GRANT OF RESTRICTED STOCK UNITS |
| Section 2. | VESTING, FORFEITURE AND TRANSFER RESTRICTIONS |
(A x B) – C, where
A = the total number of Restricted Stock Units granted under this Agreement,
B = the number of completed months to the date of termination since the Effective Date of Grant divided by 12, and
C = the number of Restricted Stock Units granted under this Agreement which vested on or prior to the date of termination.
All Restricted Stock Units that are unvested on the date of the Grantee’s Separation from Service and which do not become vested pursuant to Section 2(b)(ii) above, shall be forfeited for no consideration.
The term “Disability” shall have the meaning ascribed to such term in the Grantee’s employment, director services or similar agreement with the Company. If the Grantee’s employment, director services or similar
agreement does not define the term “Disability,” or if the Grantee has not entered into an employment, director services or similar agreement with the Company or any Subsidiary, the term “Disability” shall mean the Grantee is (or, if the Grantee were a participant, would be) entitled to long-term disability benefits pursuant to the long-term disability plan maintained by the Company or in which the Company’s employees participate.
| Section 4. | ISSUANCE OF SHARES |
If the Restricted Stock Units vest as provided under Section 2(a) and/or 2(b) of this Agreement, then as soon as administratively practicable following the Grantee’s Separation from Service, but in no event later than 30 days after such Separation from Service, the Company shall deliver to the Grantee a number of Shares equal to the number of vested Restricted Stock Units as determined by Sections 2(a) and/or 2(b) above.
| Section 5. | MISCELLANEOUS PROVISIONS |
The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if the Grantee fails to comply with his or her obligations in connection with the tax withholding contemplated above.
The Restricted Stock Units are intended to comply with Section 409A of the Code (together with any U.S. Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “Section 409A”) and the terms of the Plan, the Notice and this Agreement shall be interpreted and construed consistent with such intent. Notwithstanding any other provision of the Plan, the Notice or this Agreement, the Committee shall have the right in its sole discretion (without any obligation to do so or to indemnify the Grantee or any other person for failure to do so) to adopt such amendments to the Plan, the Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Committee determines are necessary or appropriate for this Award to comply with the requirements of Section 409A or to mitigate any liability under Section 409A if compliance is not feasible. Notwithstanding anything to the contrary in the Notice or this Agreement, if the Grantee is a “specified employee” (as defined in Treasury Regulation Section 1.409A-1(i)), any Share issuance or payments pursuant to the Notice or this Agreement due to the Grantee’s Separation from Service shall be delayed until the first business day following the expiration of the six month period following the Grantee’s Separation from Service (or until the Grantee’s death, if earlier) to
the extent required to avoid incurring accelerated taxation or penalties under Section 409A. The Company will have no liability to the Grantee or any other party if the Restricted Stock Units do not comply with Section 409A or for any action taken by the Committee with respect thereto.
Exhibit 31.1
CERTIFICATIONS
I, Joseph M. Nackashi, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Black Knight, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 4, 2022
By: | /s/ Joseph M. Nackashi | |
| Joseph M. Nackashi | |
| Chief Executive Officer | |
Exhibit 31.2
CERTIFICATIONS
I, Kirk T. Larsen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Black Knight, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 4, 2022
By: | /s/ Kirk T. Larsen | |
| Kirk T. Larsen | |
| President and Chief Financial Officer | |
| | |
Exhibit 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORTS PURSUANT TO 18 U.S.C. §1350
The undersigned hereby certifies that he is the duly appointed and acting Chief Executive Officer of Black Knight, Inc., a Delaware corporation (the “Company”), and hereby further certifies as follows.
1. | The periodic report containing financial statements to which this certificate is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934. |
2. | The information contained in the periodic report to which this certificate is an exhibit fairly presents, in all material respects, the financial condition and results of operations of the Company. |
In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.
Date: August 4, 2022
By: | /s/ Joseph M. Nackashi | |
| Joseph M. Nackashi | |
| Chief Executive Officer | |
CERTIFICATION OF PERIODIC FINANCIAL REPORTS PURSUANT TO 18 U.S.C. §1350
The undersigned hereby certifies that he is the duly appointed and acting President and Chief Financial Officer of Black Knight, Inc., a Delaware corporation (the “Company”), and hereby further certifies as follows.
1. | The periodic report containing financial statements to which this certificate is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934. |
2. | The information contained in the periodic report to which this certificate is an exhibit fairly presents, in all material respects, the financial condition and results of operations of the Company. |
In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.
Date: August 4, 2022
By: | /s/ Kirk T. Larsen | |
| Kirk T. Larsen | |
| President and Chief Financial Officer | |