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Transcript of BLACK KNIGHT FINANCIAL SERVICES, INC.d18rn0p25nwr6d.cloudfront.net/CIK-0001627014/... · On...
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current ReportPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):February 1, 2017
BLACK KNIGHT FINANCIAL SERVICES, INC.(Exact name of Registrant as Specified in its Charter)
1-37394(Commission File Number)
Delaware(State or Other Jurisdiction of Incorporation or Organization)
36-4798491(IRS Employer Identification Number)
601 Riverside AvenueJacksonville, Florida 32204
(Addresses of Principal Executive Offices)
(904) 854-5100(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On February 1, 2017 , Black Knight Financial Services, Inc. ("Black Knight") issued a press release announcing its financial results for the fourth quarter and full year 2016 .Black Knight also posted an investor presentation regarding the fourth quarter and full year 2016 earnings results to its website at www.bkfs.com. The information in this CurrentReport is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liabilitiesof that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of1933, as amended.
The Black Knight press release and earnings presentation are attached as Exhibit 99.1 and Exhibit 99.2, respectively.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
Exhibit Description
99.1 Press release announcing Black Knight's fourth quarter and full year 2016 financial results 99.2 Black Knight fourth quarter and full year 2016 earnings results presentation
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
Black Knight Financial Services, Inc. Date: February 1, 2017 By: /s/ Kirk T. Larsen Name: Kirk T. Larsen
Title: Executive Vice President and Chief Financial
Officer
EXHIBIT INDEX
Exhibit Description
99.1 Press release announcing Black Knight's fourth quarter and full year 2016 financial results 99.2 Black Knight fourth quarter and full year 2016 earnings results presentation
Exhibit 99.1
Press Release
Information for Investors: Information for Media:
Kirk Larsen Michelle Kersch
Black Knight Financial Services, Inc. Black Knight Financial Services, Inc.
904.527.4470 904.854.5043
[email protected] [email protected]
Black Knight Financial Services Reports Fourth Quarter and Full Year 2016Financial Results
Full Year 2016• Revenues increased 10% to $1,026.0 million , and Adjusted Revenues increased 10% to $1,033.3 million• Net Earnings Attributable to Black Knight Financial Services, Inc. of $45.8 million , or $0.67 per diluted share, and Adjusted Net Earnings of $175.4 million , or
$1.15 per diluted share• Adjusted EBITDA increased 12% to $463.1 million , with an Adjusted EBITDA Margin of 44.8%
Fourth Quarter 2016• Revenues increased 10% to $261.5 million , and Adjusted Revenues increased 10% to $263.0 million• Net Earnings Attributable to Black Knight Financial Services, Inc. of $11.8 million , or $0.17 per diluted share, and Adjusted Net Earnings of $45.2 million , or
$0.30 per diluted share• Adjusted EBITDA increased 8% to $116.7 million , with an Adjusted EBITDA Margin of 44.4%
JACKSONVILLE, Fla. - February 1, 2017 - Black Knight Financial Services, Inc. (NYSE: BKFS), a leading provider of technology, data and analytics solutions to the nation's topmortgage lenders and servicers, today announced financial results for the fourth quarter and year ended December 31, 2016 .
Revenues for the year ended December 31, 2016 increased 10% to $1,026.0 million from $930.7 million in the prior year. Net earnings attributable to Black Knight FinancialServices, Inc. for the year ended December 31, 2016 were $45.8 million , or $0.67 per diluted share, compared to $20.0 million in the prior year.
Adjusted Revenues for the year ended December 31, 2016 increased 10% to $1,033.3 million from $940.3 million in the prior year. Adjusted Net Earnings for the year endedDecember 31, 2016 increased 16% to $175.4 million , or $1.15 per diluted share, compared to Pro Forma Adjusted Net Earnings of $151.4 million in the prior year.
Adjusted EBITDA for the year ended December 31, 2016 increased 12% to $463.1 million from $413.5 million in the prior year. Adjusted EBITDA Margin was 44.8% comparedto 44.0% in the prior year.
Commenting on the results, Black Knight Executive Chairman Bill Foley said, “2016 was an exceptional year for Black Knight as we delivered strong results that exceeded theexpectations that we had outlined at the beginning of the year. In addition, we continued to execute on our strategic initiatives to drive organic growth through selling to existingclients, winning new clients in existing markets and the introduction of new products. Our significant implementation pipeline, driven by new client wins such
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as with Bank of America, JPMorgan Chase and PNC Bank, provides us with the confidence to deliver on our expectations for 2017 and beyond.”
Black Knight President and Chief Executive Officer Tom Sanzone added, “We are pleased with the consistent strength of our results in the fourth quarter, which included AdjustedRevenues growth of 10% and Adjusted EBITDA growth of 8%. For the year, we delivered Adjusted Revenues growth of 10% and Adjusted EBITDA growth of 12%, which drovemargin expansion of 80 basis points. As we begin 2017, we remain very excited about Black Knight’s strong business momentum across the enterprise.”
Revenues for the fourth quarter of 2016 increased 10% to $261.5 million from $237.8 million in the prior year quarter. Net earnings attributable to Black Knight Financial Services,Inc. for the fourth quarter of 2016 were $11.8 million , or $0.17 per diluted share, compared to $9.8 million , or $0.14 per diluted share, in the prior year quarter.
Adjusted Revenues for the fourth quarter of 2016 increased 10% to $263.0 million from $240.0 million in the prior year quarter. Adjusted Net Earnings for the fourth quarter of2016 increased 12% to $45.2 million , or $0.30 per diluted share, compared to Adjusted Net Earnings of $40.4 million , or $0.26 per diluted share, in the prior year quarter.
Adjusted EBITDA for the fourth quarter of 2016 increased 8% to $116.7 million from $107.7 million in the prior year quarter. Adjusted EBITDA Margin was 44.4% compared to44.9% in the prior year quarter.
Definitions of non-GAAP financial measures and the reconciliations to related GAAP measures are provided in subsequent sections of the press release narrative and supplementalschedules. Black Knight has not provided a reconciliation of forward-looking Adjusted Net Earnings Per Share and Adjusted EBITDA growth to the most directly comparableGAAP financial measures, due primarily to variability and difficulty in making accurate forecasts and projections of non-operating matters that may arise, as not all of theinformation necessary for a quantitative reconciliation is available to Black Knight without unreasonable effort.
Segment Information
Technology
Adjusted Revenues for the fourth quarter of 2016 increased 11% to $219.2 million from $197.6 million in the prior year quarter. Our servicing technology business had AdjustedRevenues growth of 10%, driven by loan growth on our servicing platform, price increases and new client wins. In our origination technology business, Adjusted Revenues growthof 17% was driven primarily by the eLynx acquisition. Adjusted EBITDA increased 13% to $124.4 million from $110.2 million , with an Adjusted EBITDA Margin of 56.8% , anincrease of 100 basis points compared to the prior year quarter.
Adjusted Revenues for the year ended December 31, 2016 increased 12% to $855.8 million from $765.8 million in the prior year. Adjusted EBITDA increased 15% to $487.8million from $424.4 million , with an Adjusted EBITDA Margin of 57.0% , an increase of 160 basis points compared to the prior year.
Data and Analytics
Adjusted Revenues for the fourth quarter of 2016 increased 4% to $43.8 million from $42.3 million in the prior year quarter driven by the Motivity Solutions acquisition, partiallyoffset by lower upfront revenues from long-term strategic license deals in the current year quarter. Adjusted EBITDA was $4.5 million compared to $7.2 million in the prior yearquarter, reflecting higher data-related costs in the current year quarter. Adjusted EBITDA Margin was 10.3% compared to 17.0% in the prior year quarter.
Adjusted Revenues for the year ended December 31, 2016 increased 2% to $177.5 million from $174.3 million in the prior year. Adjusted EBITDA was $26.5 million compared to$28.8 million in the prior year, with an Adjusted EBITDA Margin of 14.9% compared to 16.5% in the prior year.
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Realignment of Property Insight
Effective January 1, 2017, Property Insight, LLC ("Property Insight"), a Black Knight subsidiary that provides information used by title insurance underwriters, title agents andclosing attorneys to source and underwrite title insurance for real property sales and transfer, realigned its commercial relationship with Fidelity National Financial, Inc. ("FNF"). Inconnection with the realignment, Property Insight employees responsible for title plant posting and maintenance were transferred to FNF. Under the new commercial arrangement,Black Knight will continue to own the title plant technology and retain sales responsibility for third parties, other than FNF. As a result of the realignment, Black Knight will nolonger recognize revenue or expense related to title plant posting and maintenance but will charge FNF a license fee for use of the technology to access and maintain the title plantdata. Had the realignment taken place on January 1, 2016, Black Knight revenues and expenses would have been lower by approximately $31 million with no impact to AdjustedEBITDA.
Balance Sheet
At December 31, 2016 , Black Knight had cash and cash equivalents of $133.9 million and debt of $1,570.2 million . As of December 31, 2016 , Black Knight had availablecapacity of $350.0 million on its revolving credit facility.
Business Outlook
The following forward-looking statements reflect Black Knight’s expectations as of today's date. Given the number of risk factors, uncertainties and assumptions discussed below,actual results may differ materially. Black Knight does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publiclyavailable statements.Black Knight’s full year 2017 outlook is as follows:
• Revenues and Adjusted Revenues growth are expected to be in the range of 3% to 5% (6% to 8% adjusting to reflect the Property Insight realignment as if it had takenplace on January 1, 2016).
• Adjusted Net Earnings Per Share is expected to be in the range of $1.32 to $1.36 (increase of 15% to 18% compared to 2016).• Adjusted EBITDA growth is expected to be in the range of 10% to 12%.
Earnings Conference Call and Audio Webcast
Black Knight will host a conference call to discuss the fourth quarter and full year 2016 financial results on February 1, 2017 , at 5:00 p.m. ET. The conference call can be accessedlive over the phone by dialing (877) 407-4018, or for international callers (201) 689-8471. A replay will be available from 8:00 p.m. ET on February 1, 2017 through February 8,2017 , and can be accessed by dialing (844) 512-2921, or for international callers (412) 317-6671, and entering replay passcode 13652745.
The call will also be webcast live from Black Knight's investor relations website at http://investor.bkfs.com . Following completion of the call, a recorded replay of the webcast willbe available on the website.
About Black Knight Financial Services, Inc.
Black Knight (NYSE: BKFS), is a leading provider of integrated technology, data and analytics solutions that facilitate and automate many of the business processes across themortgage lifecycle.
Black Knight is committed to being the premier business partner that lenders and servicers rely on to achieve their strategic goals, realize greater success and better serve theircustomers by delivering best-in-class technology, services and insight with a relentless commitment to excellence, innovation, integrity and leadership. For more information onBlack Knight, please visit www.bkfs.com .
Non-GAAP Financial Measures
This earnings release presents non-GAAP financial information, including Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings, Pro FormaAdjusted Net Earnings and Adjusted Net Earnings Per Share. These are important financial performance measures for Black Knight, but are not financial measures as defined bygenerally accepted accounting principles ("GAAP"). The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superiorto, the financial information prepared and presented in accordance with GAAP. Black Knight uses these non-GAAP financial performance measures for financial and operationaldecision making and as a means to evaluate period-to-period comparisons. Black Knight believes they provide useful information about operating results, enhance the overallunderstanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics
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used by management in its financial and operational decision making, including determining a portion of executive compensation. Reconciliations of these measures to the mostdirectly comparable GAAP financial measures are presented in the attached schedules.
Adjusted Revenues and Adjusted EBITDA for the Technology and Data and Analytics segments are presented in conformity with Accounting Standards Codification 280, SegmentReporting . These measures are reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing theirperformance. For these reasons, these measures are excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation Gand Item 10(e) of Regulation S-K.
Adjusted Revenues - We define Adjusted Revenues as Revenues adjusted to include the revenues that were not recorded by Black Knight during the periods presented due to thedeferred revenue purchase accounting adjustment recorded in accordance with GAAP. These adjustments are reflected in Corporate and Other. This adjustment for the full year2017 is expected to be approximately $4.5 million .
Adjusted EBITDA - We define Adjusted EBITDA as Net earnings, with adjustments to reflect the addition or elimination of certain income statement items including, but notlimited to (i) depreciation and amortization; (ii) interest expense; (iii) income tax expense; (iv) the deferred revenue purchase accounting adjustment recorded in accordance withGAAP; (v) equity-based compensation; (vi) charges associated with significant legal and regulatory matters; (vii) member management fees paid to FNF and THL Managers, LLC;(viii) exit costs, impairments and other charges; (ix) costs associated with debt and equity offerings; (x) acquisition-related costs; (xi) discontinued operations and (xii) otherexpenses, net. These adjustments are reflected in Corporate and Other.
Adjusted EBITDA Margin - Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Adjusted Revenues.
Adjusted Net Earnings and Pro Forma Adjusted Net Earnings - We define Adjusted Net Earnings as Net earnings with adjustments to reflect the addition or elimination ofcertain income statement items including, but not limited to, (i) adjustments to calculate Adjusted EBITDA as described above; (ii) adjustment for the net incremental depreciationand amortization adjustments associated with the application of purchase accounting; (iii) non-recurring items in Other expense, net; (iv) adjustment for income tax expense at ourestimated effective tax rate, excluding noncontrolling interests; and (v) assuming the exchange of all the outstanding shares of our Class B common stock into shares of our Class Acommon stock, which eliminates the noncontrolling interests in Black Knight. For periods that include the results of operations prior to the third quarter of 2015, Pro FormaAdjusted Net Earnings would further include pro forma adjustments to present interest expense as if the amount of debt outstanding and applicable interest rates as a result of thedebt refinancing were consistent for all periods prior to the debt refinancing.
Adjusted Net Earnings Per Share - We calculate per share amounts assuming the exchange of all shares of Class B common stock into shares of our Class A common stock at thebeginning of the respective period, as well as the dilutive effect of any unvested restricted shares of Class A common stock.
Forward-Looking Statements
This press release contains forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements regardingexpectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on Black Knight management's beliefs, aswell 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 arenot statements of fact, actual results may differ materially from those projected. Black Knight undertakes no obligation to update any forward-looking statements, whether as aresult of new information, future events or otherwise. The risks and uncertainties that forward-looking statements are subject to include, but are not limited to: our ability tosuccessfully achieve the conditions to and consummate the tax-free spin-off of Black Knight from FNF; electronic security breaches against our information systems; our ability tomaintain and grow our relationships with our customers; changes to the laws, rules and regulations that impact our and our customers’ businesses; our ability to adapt our servicesto changes in technology or the marketplace; the impact of any potential defects, development delays, installation difficulties or system failures on our business and reputation;changes in general economic, business, regulatory and political conditions, particularly as they affect the mortgage industry; risks associated with the availability of data; the effectsof our substantial leverage on our ability to make acquisitions and invest in our business; risks associated with our structure and status as a “controlled company;” our ability tosuccessfully integrate strategic acquisitions; and other risks and uncertainties detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and othersections of our Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.
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SCHEDULE IBLACK KNIGHT FINANCIAL SERVICES, INC.
Consolidated Balance Sheets(In millions)
December 31,
2016 2015 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 133.9 $ 186.0
Trade receivables, net 155.8 138.7
Prepaid expenses and other current assets 45.4 28.2
Receivables from related parties 4.1 7.6Total current assets 339.2 360.5
Property and equipment, net 173.0 152.0
Computer software, net 450.0 466.5
Other intangible assets, net 299.5 330.2
Goodwill 2,303.8 2,220.1
Other non-current assets 196.5 174.4
Total assets $ 3,762.0 $ 3,703.7
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable and other accrued liabilities $ 55.2 $ 42.1
Accrued compensation and benefits 61.1 52.2
Current portion of long-term debt 63.4 43.5
Deferred revenues 47.4 40.4Total current liabilities 227.1 178.2
Deferred revenues 77.3 56.2
Deferred income taxes, net 7.9 4.7
Long-term debt, net of current portion 1,506.8 1,618.0
Other non-current liabilities 3.5 1.6
Total liabilities 1,822.6 1,858.7
Equity:
Additional paid-in capital 810.8 798.9
Retained earnings 65.7 19.9
Accumulated other comprehensive loss (0.8) (0.1)
Total shareholders' equity 875.7 818.7
Noncontrolling interests 1,063.7 1,026.3
Total equity 1,939.4 1,845.0
Total liabilities and equity $ 3,762.0 $ 3,703.7
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SCHEDULE IIBLACK KNIGHT FINANCIAL SERVICES, INC.
Consolidated Statements of Earnings(In millions, except per share data)
Three months ended December 31, Year ended December 31,
2016 2015 2016 2015 (Unaudited)
Revenues $ 261.5 $ 237.8 $ 1,026.0 $ 930.7
Expenses:
Operating expenses 149.2 133.3 582.6 538.2
Depreciation and amortization 54.1 50.9 208.3 194.3
Transition and integration costs 0.1 0.6 2.3 8.0
Total expenses 203.4 184.8 793.2 740.5
Operating income 58.1 53.0 232.8 190.2
Other income and expense:
Interest expense (17.0) (16.5) (67.6) (89.8)
Other expense, net (0.2) — (6.4) (4.6)
Total other expense, net (17.2) (16.5) (74.0) (94.4)
Earnings before income taxes 40.9 36.5 158.8 95.8
Income tax expense 6.6 6.4 25.8 13.4
Net earnings 34.3 30.1 133.0 82.4
Less: Net earnings attributable to noncontrolling interests 22.5 20.3 87.2 62.4
Net earnings attributable to Black Knight Financial Services, Inc. $ 11.8 $ 9.8 $ 45.8 $ 20.0
Three months ended December 31,
Year ended December 31,2016
May 26, 2015 through
December 31, 2015 2016 2015 (Unaudited)
Earnings per share Net earnings per share attributable to Black KnightFinancial Services, Inc., Class A common shareholders:
Basic $ 0.18 $ 0.15 $ 0.69 $ 0.31
Diluted(1) $ 0.17 $ 0.14 $ 0.67 $ 0.29
Weighted average shares of Class A common stock outstanding:
Basic 66.1 64.4 65.9 64.4
Diluted(1) 68.1 67.9 67.9 67.9______________(1) During the three months ended December 31, 2016 and 2015, the year ended December 31, 2016 and the period May 26, 2015 through December 31, 2015, potentially dilutive securities include restricted stock awards and the shares of Class B common
stock that are convertible on a one-for-one basis into shares of our Class A common stock. However, the approximately 84.8 million Class B common shares have been excluded in computing diluted net earnings per share because including them on an"if-converted" basis would have an anti-dilutive effect. The shares of Class B common stock do not share in the earnings or losses of Black Knight and are, therefore, not participating securities. Accordingly, basic and diluted net earnings per share ofClass B common stock have not been presented. The denominator includes the dilutive effect of approximately 2.0 million and 3.5 million shares of unvested restricted shares of Class A common stock for the three months ended December 31, 2016 and2015, respectively, and approximately 2.0 million and 3.5 million for the year ended December 31, 2016 and the period from May 26, 2015 through December 31, 2015, respectively.
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SCHEDULE IIIBLACK KNIGHT FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows(In millions)
Year ended December 31,
2016 2015 (Unaudited)
Cash flows from operating activities:
Net earnings $ 133.0 $ 82.4
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 208.3 194.3
Amortization of debt issuance costs, bond premium and original issue discount 2.7 0.8
Loss on extinguishment of debt, net — 4.8
Deferred income taxes, net 3.2 11.8
Equity-based compensation 12.4 11.4
Changes in assets and liabilities:
Trade and other receivables, including receivables from related parties (6.4) (20.9)
Prepaid expenses and other assets (11.2) (6.4)
Deferred contract costs (51.9) (54.9)
Deferred revenues 26.2 32.6
Trade accounts payable and other accrued liabilities 9.4 (7.7)
Net cash provided by operating activities 325.7 248.2
Cash flows from investing activities:
Additions to property and equipment (38.1) (45.6)
Additions to computer software (41.9) (50.1)
Business acquisitions, net of cash acquired (150.2) —
Investment in property records database — (6.8)
Net cash used in investing activities (230.2) (102.5)
Cash flows from financing activities:
Borrowings, net of original issue discount 55.0 1,299.0
Debt service payments (149.0) (1,745.9)
Distributions to members (48.6) (17.4)
Capital lease payments (5.0) —
Proceeds from issuance of Class A common stock, before offering expenses — 479.3
Costs directly associated with issuance of Class A common stock — (4.2)
Debt issuance costs — (20.6)
Senior notes call premium — (11.8)
Net cash used in financing activities (147.6) (21.6)
Net (decrease) increase in cash and cash equivalents (52.1) 124.1
Cash and cash equivalents, beginning of period 186.0 61.9
Cash and cash equivalents, end of period $ 133.9 $ 186.0
Supplemental cash flow information:
Interest paid $ (60.2) $ (89.2)
Income taxes (paid) refunded, net $ (21.9) $ 0.2
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SCHEDULE IVBLACK KNIGHT FINANCIAL SERVICES, INC.
Segment Information(In millions)
Three months ended December 31, 2016
Technology Data
and Analytics Corporateand Other Total
(Unaudited)Revenues $ 219.2 $ 43.8 $ (1.5) (1) $ 261.5Expenses:
Operating expenses 94.8 39.3 15.1 149.2Transition and integration costs — — 0.1 0.1
EBITDA 124.4 4.5 (16.7) 112.2Depreciation and amortization 26.0 2.3 25.8 (2) 54.1Operating income (loss) 98.4 2.2 (42.5) 58.1Interest expense (17.0)Other expense, net (0.2)Earnings before income taxes 40.9Income tax expense 6.6
Net earnings $ 34.3________________________(1) Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.(2) Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded inaccordance with GAAP.
Three months ended December 31, 2015
Technology Data
and Analytics Corporateand Other Total
(Unaudited)Revenues $ 197.6 $ 42.3 $ (2.1) (1) $ 237.8Expenses:
Operating expenses 87.4 35.1 10.8 133.3Transition and integration costs — — 0.6 0.6
EBITDA 110.2 7.2 (13.5) 103.9Depreciation and amortization 24.3 1.9 24.7 (2) 50.9Operating income (loss) 85.9 5.3 (38.2) 53.0Interest expense (16.5)Other expense, net —Earnings before income taxes 36.5Income tax expense 6.4
Net earnings $ 30.1________________________(1) Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.(2) Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded inaccordance with GAAP.
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SCHEDULE IV (CONTINUED)BLACK KNIGHT FINANCIAL SERVICES, INC.
Segment Information(In millions)
Year ended December 31, 2016
Technology Data
and Analytics Corporateand Other Total
(Unaudited)Revenues $ 855.8 $ 177.5 $ (7.3) (1) $ 1,026.0Expenses:
Operating expenses 368.0 151.0 63.6 582.6Transition and integration costs — — 2.3 2.3
EBITDA 487.8 26.5 (73.2) 441.1Depreciation and amortization 106.2 8.8 93.3 (2) 208.3Operating income (loss) 381.6 17.7 (166.5) 232.8Interest expense (67.6)Other expense, net (6.4)Earnings before income taxes 158.8Income tax expense 25.8
Net earnings $ 133.0________________________(1) Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.(2) Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded inaccordance with GAAP.
Year ended December 31, 2015
Technology Data
and Analytics Corporateand Other Total
(Unaudited)Revenues $ 765.8 $ 174.3 $ (9.4) (1) $ 930.7Expenses:
Operating expenses 341.4 145.5 51.3 538.2Transition and integration costs — — 8.0 8.0
EBITDA 424.4 28.8 (68.7) 384.5Depreciation and amortization 93.3 7.2 93.8 (2) 194.3Operating income (loss) 331.1 21.6 (162.5) 190.2Interest expense (89.8)Other expense, net (4.6)Earnings before income taxes 95.8Income tax expense 13.4
Net earnings $ 82.4________________________(1) Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.(2) Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded inaccordance with GAAP.
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SCHEDULE VBLACK KNIGHT FINANCIAL SERVICES, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures(In millions)
Reconciliation of Revenues to Adjusted Revenues
Three months ended December 31, Year ended December 31,
2016 2015 2016 2015 (Unaudited)Revenues $ 261.5 $ 237.8 $ 1,026.0 $ 930.7Deferred revenue adjustment 1.5 2.2 7.3 9.6
Adjusted Revenues $ 263.0 $ 240.0 $ 1,033.3 $ 940.3
Reconciliation of Net Earnings to Adjusted EBITDA
Three months ended December 31, Year ended December 31,
2016 2015 2016 2015 (Unaudited)Net earnings $ 34.3 $ 30.1 $ 133.0 $ 82.4Depreciation and amortization 54.1 50.9 208.3 194.3Interest expense 17.0 16.5 67.6 89.8Income tax expense 6.6 6.4 25.8 13.4Other expense, net 0.2 — 6.4 4.6EBITDA 112.2 103.9 441.1 384.5Deferred revenue adjustment 1.5 2.2 7.3 9.6Equity-based compensation 2.9 1.0 12.4 11.4Transition and integration costs 0.1 — 2.3 3.6IPO costs — 0.6 — 4.4
Adjusted EBITDA $ 116.7 $ 107.7 $ 463.1 $ 413.5
Adjusted EBITDA Margin 44.4% 44.9% 44.8% 44.0%
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SCHEDULE VIBLACK KNIGHT FINANCIAL SERVICES, INC.
Reconciliation of Net Earnings to Adjusted Net Earnings /Pro Forma Adjusted Net Earnings(In millions, except per share data)
Three months ended December 31, Year ended December 31,
2016 2015 2016 2015 (Unaudited)Net earnings $ 34.3 $ 30.1 $ 133.0 $ 82.4Depreciation and amortization adjustment (1) 25.1 23.8 90.1 90.3Deferred revenue adjustment (2) 1.5 2.2 7.3 9.6Equity-based compensation (3) 2.9 1.0 12.4 11.4Other expense, net adjustment (4) 0.2 — 6.4 4.8Transition and integration costs (5) 0.1 — 2.3 3.6Interest expense adjustment (6) — — — 23.3IPO costs (7) — 0.6 — 4.4Income tax expense adjustment (8) (18.9) (17.3) (76.1) (78.4)
Adjusted Net Earnings /Pro Forma Adjusted Net Earnings (9) $ 45.2 $ 40.4 $ 175.4 $ 151.4
Adjusted Net Earnings Per Share $ 0.30 $ 0.26 $ 1.15 N/A
Weighted Average Adjusted Shares Outstanding 153.0 152.7 152.7 N/A________________________Non-GAAP and Pro Forma adjustments:
(1) Represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting.(2) Represents adjustments to include the revenues that were not recorded by Black Knight during the period presented due to deferred revenue purchase accounting adjustments, all of which are included in Corporate and Other.(3) Represents adjustments to exclude equity-based compensation.(4) Represents adjustments to exclude Other expenses, net.(5) In 2016, represents incremental costs associated with acquisitions and professional services related to the planned distribution of FNF's ownership interest. In 2015, represents member management fees paid through the date of the initial public
offering.(6) Represents pro forma adjustments to reflect the effect of the debt refinancing for periods prior to third quarter 2015, presenting interest expense as if the amount of debt outstanding and interest rates were consistent with the terms in effect on the
date of refinancing.(7) Represents costs related to the initial public offering of Black Knight.(8) Represents adjustments to reflect a full year estimated effective tax rate of 36.8% and 37.7% for 2016 and 2015, respectively, assuming the conversion of all the shares of Class B common stock into shares of Class A common stock, assuming that
Black Knight was a taxable entity as of the beginning of the earliest period presented and assuming the effect of the non-GAAP and/or pro forma adjustments.(9) Periods prior to third quarter 2015 are presented on a pro forma basis.
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1Black Knight Financial Services TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2016 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affili te. © 2017 Bl ck Knight Financial Tech ology Solutions, LLC. All Rights Reserved. Black Knight Financial Services, Inc. Fourth Quarter and Full Year 2016 Earnings Results February 1, 2017
2Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Disclaimer Forward-Looking Statements This presentation contains forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements regarding expectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on Black Knight management's beliefs, as well as assumptions made by, and information currently available to, them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Black Knight undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties that forward-looking statements are subject to include, but are not limited to: our ability to successfully achieve the conditions to and consummate the tax-free spin-off of Black Knight from Fidelity National Financial, Inc.; electronic security breaches against our information systems; our ability to maintain and grow our relationships with our customers; changes to the laws, rules and regulations that impact our and our customers’ businesses; our ability to adapt our services to changes in technology or the marketplace; the impact of any potential defects, development delays, installation difficulties or system failures on our business and reputation; changes in general economic, business, regulatory and political conditions, particularly as they affect the mortgage industry; risks associated with the availability of data; the effects of our substantial leverage on our ability to make acquisitions and invest in our business; risks associated with our structure and status as a “controlled company;” our ability to successfully integrate strategic acquisitions; and other r isks and uncertainties detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and other sections of our Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. Non-GAAP FinancialMeasures This presentation contains non-GAAP financial information, including Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings, Pro Forma Adjusted Net Earnings and Adjusted Net Earnings Per Share. These are important financial performance measures for Black Knight, but are not financial measures as defined by generally accepted accounting principles (“GAAP”). The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Black Knight uses these non-GAAP financial performance measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Black Knight believes they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making, including determining a portion of executive compensation. Black Knight has not provided a reconciliation of forward-looking Adjusted Net Earnings Per Share and Adjusted EBITDA growth to the most directly comparable GAAP financial measures, due primarily to variability and difficulty in making accurate forecasts and projections of non-operating matters that may arise, as not all of the information necessary for a quantitative reconciliation is available to Black Knight without unreasonable effort. See the Appendix for further information.
3Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. GAAP Financial Results Metrics Full Year Fourth Quarter Revenues $1,026.0 million, +10% $261.5 million, +10% Net Earnings Attributable to Black Knight Financial Services, Inc. $45.8 million $11.8 million Net Earnings Per Share Attributable to Black Knight Financial Services, Inc. - Diluted $0.67 $0.17
4Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Financial Highlights: Full Year Metrics Full Year Initial Guidance(1) Adjusted Revenues $1,033.3 million, +10% +6% to 8% Adjusted EBITDA $463.1 million, +12% +8% to 10% Adjusted EBITDA Margin 44.8%, +80 bps Adjusted Net Earnings $175.4 million, +16% Adjusted Net Earnings Per Share $1.15 $1.09 to $1.13 (1) Initial full year 2016 financial guidance provided on February 10, 2016
5Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Financial Highlights: Fourth Quarter Metrics Fourth Quarter Adjusted Revenues $263.0 million, +10% Adjusted EBITDA $116.7 million, +8% Adjusted EBITDA Margin 44.4%, -50 bps Adjusted Net Earnings $45.2 million, +12% Adjusted Net Earnings Per Share $0.30, +15%
6Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. 55.4% 57.0% FY 2015 FY 2016 Technology 55.8% 56.8% Q4 2015 Q4 2016 $198 $219 Q4 2015 Q4 2016 $766 $856 FY 2015 FY 2016 +100 bps Y/Y expansion +11% Y/Y growth Adjusted EBITDA Margin(1) (%) +12% Y/Y growth +160 bps Y/Y expansion Adjusted Revenues(1) ($ in millions) Servicing Technology adjusted revenues growth driven by increased loan counts coupled with price escalation and new client wins Origination Technology adjusted revenues grew primarily from prior year client implementations, increased transaction volumes and the eLynx acquisition Adjusted EBITDA margin expansion driven by revenue contribution and cost efficiencies Adjusted EBITDA margin expansion of 160 basis points for the year and 100 basis points for the quarter Full Year and Fourth Quarter Highlights (1) Adjusted Revenues and Adjusted EBITDA Margin for the Technology segment presented in conformity with Accounting Standards Codification 280, Segment Reporting. Therefore, these measures are excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.
7Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Data and Analytics 17.0% 10.3% Q4 2015 Q4 2016 $42 $44 Q4 2015 Q4 2016 $174 $178 FY 2015 FY 2016 670 bps Y/Y reduction +4% Y/Y growth Adjusted EBITDA Margin(1) (%) +2% Y/Y growth 160 bps Y/Y reduction Adjusted Revenues(1) ($ in millions) 16.5% 14.9% FY 2015 FY 2016 Adjusted revenues growth driven by the acquisition of Motivity, new client wins and higher transaction volumes partially offset by lower upfront revenues from long-term strategic license deals Adjusted EBITDA margin in the fourth quarter includes higher data-related costs Full Year and Fourth Quarter Highlights (1) Adjusted Revenues and Adjusted EBITDA Margin for the Data and Analytics segment presented in conformity with Accounting Standards Codification 280, Segment Reporting. Therefore, these measures are excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.
8Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Capital Structure (1) Excludes unamortized bond premium, original issue discount and debt issuance costs ($ in millions) As of 12/31/16 Maturity Interest Rate Cash and Cash Equivalents $ 134 Revolver ($400mm) 50 2020 LIBOR + 200bps Term A Loan 740 2020 LIBOR + 200bps Term B Loan 394 2022 LIBOR + 300bps / 75bps floor Senior Notes 390 2023 5.75% Total Long-term Debt(1) $1,574 Capital Lease Obligation 5 2017 0.00% Total Debt $1,579 Net Debt $1,445 LTM 12/31/16 Adjusted EBITDA $ 463 Total Debt / LTM Adjusted EBITDA 3.4x Net Debt / LTM Adjusted EBITDA 3.1x
9Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Property Insight Realignment Effective January 1, 2017, Black Knight has realigned the commercial relationship between its Property Insight business and FNF Property Insight provides information used to source and underwrite title insurance policies Employees responsible for title plant posting and maintenance have been transferred to FNF Black Knight retains the software development, hosting and technology aspect of the Property Insight business, as well as the third party sales of Property Insight offerings • Focused on the higher margin technology solutions that are similar to Black Knight’s other businesses If the realignment had taken place at the beginning of 2016, revenues and expenses would have been lower by approximately $31 million with no effect on Adjusted EBITDA
10Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Full Year 2017 Financial Guidance Financial Metric Guidance Revenues and Adjusted Revenues Growth +3% to 5% (+6% to 8% adjusting to reflect the Property Insight realignment as if it took place on January 1, 2016) Adjusted EBITDA Growth +10% to 12% Adjusted Net Earnings Per Share $1.32 to $1.36 Full Year 2017 guidance is based upon the following estimates and assumptions: Interest expense of ~$70 million Depreciation and amortization expense of ~$120 million (excluding incremental depreciation and amortization expense resulting from purchase accounting) Fully-distributed effective tax rate of ~37% Diluted weighted-average shares outstanding of ~153 million shares CAPEX of approximately $90 million
11Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Full Year 2017 Adjusted Revenues Bridge $1,033.3 $(31.0) FY 2016 Property Insight Realignment 2017 Growth FY 2017 Adjusted Revenues ($ in millions) -3% +6% to 8% +3% to 5%
12Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Appendix
13Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Non-GAAP Financial Measures Adjusted Revenues –We define Adjusted Revenues as Revenues adjusted to include the revenues that were not recorded by Black Knight during the periods presented due to the deferred revenue purchase accounting adjustment recorded in accordance with GAAP. These adjustments are reflected in Corporate and Other. This adjustment for the full year of 2017 is expected to be approximately $4.5 million. Adjusted EBITDA –We define Adjusted EBITDA as Net earnings, with adjustments to reflect the addition or elimination of certain income statement items including, but not limited to (i) depreciation and amortization; (ii) interest expense; (iii) income tax expense; (iv) the deferred revenue purchase accounting adjustment recorded in accordance with GAAP; (v) equity-based compensation; (vi) charges associated with significant legal and regulatory matters; (vii) member management fees paid to FNF and THL Managers LLC; (viii) exit costs, impairments and other charges; (ix) costs associated with debt and equity offerings; (x) acquisition-related costs; (xi) discontinued operations and (xii) other expenses, net. These adjustments are reflected in Corporate and Other. Adjusted EBITDA Margin – Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Adjusted Revenues. Adjusted Net Earnings and Pro Forma Adjusted Net Earnings –We define Adjusted Net Earnings as Net earnings with adjustments to reflect the addition or elimination of certain income statement items including, but not limited to, (i) adjustments to calculate Adjusted EBITDA as described above; (ii) adjustment for the net incremental depreciation and amortization adjustments associated with the application of purchase accounting; (iii) non-recurring items in Other expense, net; (iv) adjustment for income tax expense at our estimated effective tax rate, excluding noncontrolling interests; and (v) assuming the exchange of all the outstanding shares of our Class B common stock into shares of our Class A common stock, which eliminates the noncontrolling interests in Black Knight. For periodsthat include the results of operations prior to the third quarter of 2015, Pro Forma Adjusted Net Earnings would further include pro forma adjustments to present interest expense as if the amount of debt outstanding and applicable interest rates as a result of the debt refinancing were consistent for all periods prior to the debt refinancing. Adjusted Net Earnings Per Share –We calculate per share amounts assuming the exchange of all shares of Class B common stock into shares of our Class A common stock at the beginning of the respective period, as well as the dilutive effect of any unvested restricted shares of Class A common stock.
14Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Non-GAAP Reconciliations: Adjusted Revenues and Adjusted EBITDA Three Months Ended December 31, Year Ended December 31, ($ in millions) 2016 2015 2016 2015 Revenues $ 261.5 $ 237.8 $ 1,026.0 $ 930.7 Deferred revenue adjustment 1.5 2.2 7.3 9.6 Adjusted Revenues $ 263.0 $ 240.0 $ 1,033.3 $ 940.3 Three Months Ended December 31, Year Ended December 31, ($ in millions) 2016 2015 2016 2015 Net earnings $ 34.3 $ 30.1 $ 133.0 $ 82.4 Depreciation and amortization 54.1 50.9 208.3 194.3 Interest expense 17.0 16.5 67.6 89.8 Income tax expense 6.6 6.4 25.8 13.4 Other expense, net 0.2 — 6.4 4.6 EBITDA 112.2 103.9 441.1 384.5 Deferred revenue adjustment 1.5 2.2 7.3 9.6 Equity-based compensation 2.9 1.0 12.4 11.4 Transition and integration costs 0.1 — 2.3 3.6 IPO costs — 0.6 — 4.4 Adjusted EBITDA $ 116.7 $ 107.7 $ 463.1 $ 413.5 Adjusted EBITDA Margin (%) 44.4% 44.9% 44.8% 44.0%
15Black Knight Financial Services Confidential, Proprietary and/or Trade Secret TM SM ® Trademark(s) of Black Knight IP Holding Company, LLC, or an affiliate. © 2017 Black Knight Financial Technology Solutions, LLC. All Rights Reserved. Non-GAAP Reconciliation: Adjusted Net Earnings and Pro Forma Adjusted Net Earnings Three Months Ended December 31, Year Ended December 31, ($ in millions, except per share) 2016 2015 2016 2015 Net earnings $ 34.3 $ 30.1 $ 133.0 $ 82.4 Depreciation and amortization adjustment 25.1 23.8 90.1 90.3 Deferred revenue adjustment 1.5 2.2 7.3 9.6 Equity-based compensation 2.9 1.0 12.4 11.4 Other expense, net adjustment 0.2 — 6.4 4.8 Transition and integration costs 0.1 — 2.3 3.6 Interest expense adjustment — — — 23.3 IPO costs — 0.6 — 4.4 Income tax expense adjustment (18.9) (17.3) (76.1) (78.4) Adjusted Net Earnings / Pro Forma Adjusted Net Earnings $ 45.2 $ 40.4 $ 175.4 $ 151.4 Adjusted Net Earnings Per Share $ 0.30 $ 0.26 $ 1.15 Weighted Average Adjusted Shares Outstanding 153.0 152.7 152.7