Black Knight raises its long-term growth forecast as business expands

Black Knight not only again increased its full year 2021 revenue and earnings outlook, it also upped its long-term revenue growth guidance for the first time since it became publicly traded in 2015.

The company earned $53.4 million in the third quarter, up from $39.7 million in the second quarter but well below the $127.8 million recorded in the third quarter 2020.

“The underlying fundamentals of our business remain very strong and based on the continued momentum of our transformation, we are updating our long-term revenue growth guidance to 7% to 9%, an increase from our prior view of 6% to 8% that was in place since our initial public offering 6 years ago,” Anthony Jabbour, chairman and CEO, said in a press release.

By segment, Black Knight’s increased growth target is in the mid-single-digits for its servicing technology, double-digits from its origination business, and mid-single-digits or greater for data and analytics, a research note from Keefe, Bruyette & Woods analyst Ryan Tomasello said.

“Management expects its long-term revenue growth targets to drive 15% annual earnings growth including margin expansion and deleveraging,” he added.

Jabbour also announced Black Knight raised its full-year outlook for revenue to be in the range of $1.466 billion to $1.472 billion, adjusted EBITDA in the range of $720 million to $724 million and adjusted earnings per share in the range of $2.34 to $2.36.

This compares with the second quarter’s updated full year top-end outlook of $1.463 billion (up from $1.428 billion in the first quarter), adjusted EBITDA at $716 million (up from $711 million) and earnings per share of $2.29 (up from $2.24).

The increased guidance incorporates stronger organic revenue growth of between 9.5% and 10% (from 8% to 9% previously); no net impact from declining mortgage origination volumes (as opposed to a $5 million headwind predicted previously), a slightly lower tax rate (22% compared to 22 to 23% previously), and a recent repurchase of 1.4 million shares, an earlier flash note from Tomasello explained.

Black Knight reported third quarter organic revenue growth of 9.8%, compared with KBW’s expected 6.7%. By segment, it broke down to 8.6% for servicing software, 13.6% for origination software and 7.6% for data and analytics. Organic growth includes adjustments made to show previous period changes for purchased companies prior to Black Knight’s ownership. It has made six acquisitions since March 2020, including a mortgage broker loan origination system from NexSpring Financial, marketing firm Top of Mind, e-notary DocVerify and pricing engine Optimal Blue.

For the third quarter, Black Knight’s software solutions business, which covers both its servicing platform and loan origination system offerings, had operating income of $150 million, compared with $116 million in the second quarter and $141.6 million in the third quarter of 2020.

Revenue from servicing software rose to $210.9 million from $194.2 million on a year-over-year basis. For origination software, it was $108.7 million, compared with $95.7 million in the third quarter of 2020, which was adjusted to include $30.4 million of revenue from companies prior to their acquisition.

Black Knight’s data and analytics segment reported $17 million of operating income in the third quarter, flat with the second quarter’s $17.1 million but up from $14.7 million.

As for corporate and other, Black Knight had an $84.3 million operating loss, an improvement over an $89.1 million operating loss in the second quarter but an increase from the $76.2 million loss in the third quarter of 2020.