Black Knight Inc (BKI) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Black Knight Fourth Quarter and Full Year 2017 Earnings Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Bryan Hipsher, Senior Vice President of Finance. Please go ahead.

Thanks. Good afternoon, everyone, and thank you for joining us for the Black Knight Fourth Quarter 2017 Earnings Conference Call. Joining me today are Executive Chairman, Bill Foley; CEO, Tom Sanzone; and Chief Financial Officer, Kirk Larsen. We'll begin with a brief overview from Bill. Tom will then discuss 2017 highlights as well as 2018 key areas of focus, and Kirk will finish with a review of fourth quarter and full year financial highlights and our outlook for 2018. We'll then open up the call for your questions.

This conference call includes forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our expectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management.

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 risks and other factors detailed in our press release issued earlier today and in the statement regarding forward-looking information, risk factors and other sections of our Form 10-K and other filings with the Securities and Exchange Commission.

Today's remarks will also include references to non-GAAP financial measures in order to provide more meaningful comparisons between the periods presented. These are important financial performance measures for Black Knight but are not financial measures as defined by generally accepted accounting principles or GAAP. Reconciliations between non-GAAP financial information to the GAAP financial information are provided in the schedules of the press release and in the Appendix of the supplemental slide presentation.

This conference call will be available for replay via webcast through Black Knight's Investor Relations website at investor.bkfs.com. It will also be available through telephone replay from 8:00 p.m. Eastern Time on February 7, 2018, to February 14, 2018, by dialing (844) 512-2921 or (412) 317-6671. The replay pass code will be 13674141.

I'll now turn the call over to Bill.

Thanks, Bryan. 2017 was another strong year for Black Knight as we continue to execute against our long-term strategic initiatives to drive organic growth and increase shareholder return. In particular, we expanded our relationships with several key new client wins in existing markets, continued down the path in creating enterprise relationships with our substantial client base, increase value through the spin-off, debt refinancing and share repurchase program.

As we look towards 2018, we're excited and optimistic about our opportunities to continue to drive Black Knight forward and deliver even more value for our shareholders. Based on the outcome of the Tax Cut and Jobs Act of 2017, we anticipate a significant reduction in our effective tax rate, which will result in additional capital to deploy. Our continued focus will be on delivering value through our -- through investment in our solution sets, opportunistic share repurchases and debt paydown to strengthen our financial positioning as we look for acquisitions that can create enhanced value for the company.

I'll now turn over the call over to Tom to provide us with an update on the business.

Thank you, Bill, and good afternoon, everyone. Thank you for joining us for our fourth quarter earnings call. I would like to spend my time today discussing some highlights from 2017, and then finish up with our key areas of focus for 2018.

2017 was a year in which we focused on landing a top 10 bank on our loan origination software, implementing the second largest home equity portfolio in the country, proving out the power of our enterprise business intelligence solutions and, ultimately, expanding our significant sold pipeline through cross-sell and enterprise expansion efforts. As we mentioned on our last earnings call, we had seen a level of interest in third-party loan origination software platforms from the top 10 banks that we had never seen before. Through a competitive process, CitiMortgage is the first of those banks to select Black Knight as their loan origination software provider. We believe that Black Knight was selected due to our end-to-end solution, with superior scalability, feature functionality and an ability to drive production costs down. When combined with their decision to move their performing loan portfolio to our servicing software platform [via sandmar], it is clear that they recognize the exponential value of becoming an enterprise client. This is a transformational deal for us as it proves out that a cradle-to-grave solution is a compelling differentiator for any lender or servicer considering a platform change. It also supports the fact that we have the ability to process the largest providers in the country on all of our software and analytic offerings.

Following up on the theme of transformational events in 2017, the conversion of JPMorgan Chase's home equity portfolio was another milestone achievement. The conversion of the second largest home equity portfolio in the country not only enhances an already strong relationship with JPMorgan, but is a proof point that we can deliver for the largest home equity servicers in the nation. We are very excited about this successful outcome and we look forward to delivering scalability, feature functionality and cost savings to the rest of the industry's other top participants.

To go along with these significant events, we also continued to grow our already substantial sold pipeline. With Ocwen, we signed another top 15 servicer, which means 14 of the top 15 servicers will be using MSP. We also signed 6 [of our] MSP clients and renewed 11 existing MSP clients to deals extending out 5 years on average.

We also expanded our existing servicing relationships with Regions and Wells Fargo by adding home equity capabilities. In origination software, we added Citi and expanded our origination relationships with Regions and Citizens to add home equity capabilities, added an Empower Now! client and 9 new lending solution clients. Data and analytics and enterprise business intelligence also had a strong sales year, adding names like Wells Fargo to the Data Hub and M&T Bank most recently to our full EBI suite. M&T Bank is an exciting client for us as they will be utilizing all of our key solutions. M&T is the model of what we wish to achieve for the industry's key participants, a cradle-to-grave Black Knight solution set that drives cost savings, enables revenue growth and mitigates risk across our client's entire mortgage business. These sales efforts over the past few years have resulted in a significant sold pipeline. Previously, we had communicated $130 million as of the spin-off date. But based on the significant sales of late, we wanted to provide an update amount and timing. Based on the latest information we have, the sold pipeline has now grown to approximately $160 million of incremental run rate by the end of 2020. This $160 million represents sold deals that are in some stage of their implementation or ramp-up cycle but does not include price increases, organic volume growth or any other new deals we may sign in the future.

Shifting to our areas of focus for 2018, we will be focusing on growing our origination software client base, winning additional home equity deals in servicing, growing and extending our EBI client base and utilizing investment dollars to enhance and evolve our solutions. First and foremost, we will be focused on adding top-tier originators to our origination software platforms. In fact, we feel confident that another top 20 lender will sign an agreement to use our solution before the end of this year. And we will continue to target our existing relationships in servicing to drive additional origination software signings in 2018. To put the opportunity in perspective, 16 out of our 68 MSP clients are using or implementing our Empower Loan Origination System. The remaining 52 would represent a significant share of the total origination market. By leveraging these relationships, along with focusing on the largest non-bank originators with an offering that is unmatched in scalability and functionality, we are well positioned to substantially strengthen our position over the coming years.

2018 will also be a year in which we focus on continuing to increase our home equity market share on MSP. We ended 2017 with a post-implementation pro forma market share of approximately 30%, and we'll look to build on the momentum I discussed earlier.

Innovating and evolving our solutions will be the investment focus for this year. In addition to building out correspondent functionality within Empower, we are enhancing our offerings to include full process automation, enhanced user experience, machine learning capabilities and increased fortification for our solutions in terms of information security and data center hardening. Black Knight is the premier provider of software data and analytics to the mortgage and consumer loan, real estate and capital markets verticals, and we intend to extend that position year-after-year.

In closing, 2017 was a transformational year for Black Knight that will position us for continued strength in the years to come, and 2018 will be another example of Black Knight's position as the premier financial technology and software provider to the industry's key participants.

Thank you for your time today. I will now turn the call over to Kirk for an in-depth financial update.

Thank you, Tom, and good afternoon, everyone. Today, I'm going to discuss our fourth quarter and full year 2017 financial results and our financial plan for 2018.

Turning to Slide 3. On a GAAP basis, full year 2017 revenues increased 2.5% to $1,051.6 million compared to 2016. Net earnings attributable to Black Knight, Inc. were $182.3 million or $1.47 per diluted share compared to $45.8 million in 2016 or $0.67 per diluted share in 2016. For the fourth quarter, revenues increased 2% to $267.5 million compared to $261.5 million in 2016. Net earnings attributable to Black Knight, Inc. were $147.2 million or $0.97 per diluted share compared to $11.8 million or $0.17 per diluted share in the prior-year quarter. The fourth quarter and full year 2017 GAAP results include a tax benefit of $110.9 million related to the revaluation of our net deferred income tax liabilities to reflect the lower tax rates resulting from the new tax reform legislation passed in December.

Turning to Slide 4, I'll now discuss our adjusted results for the full year and fourth quarter. In 2017, adjusted revenues were $1,056,000,000, an increase of 2% compared to 2016. Adjusted revenues grew 5%, including the effect of the Property Insight realignment. Adjusted EBITDA was $505.8 million, an increase of 9% compared to 2016. Adjusted EBITDA margin was 47.9%, an increase of 310 basis points compared to 2016. Adjusted net earnings was $209.6 million, an increase of 19.5%. Adjusted net earnings per share was $1.38, an increase of 20%. And finally, full year 2017 CapEx was $89.5 million, including capital leases entered into during the year.

I'll now discuss our adjusted results for the fourth quarter. During the fourth quarter, adjusted revenues were $268.4 million, an increase of 2% compared to the prior year quarter. Adjusted revenues were up 5% excluding the effect of the Property Insight realignment. Adjusted EBITDA increased 13% to $131.9 million compared to $116.7 million in the prior-year quarter. Adjusted EBITDA margin was 49.1%, an increase of 470 basis points compared to the prior-year quarter. Adjusted net earnings was $56.6 million, an increase of 25% compared to the prior-year quarter. Adjusted net earnings per share for the fourth quarter was $0.37, an increase of 23% compared to the prior-year quarter. Adjusted net earnings and adjusted net earnings per share for the fourth quarter and full year 2017 exclude the tax benefit resulting from the new tax reform legislation that I mentioned earlier. Capital expenditures in the fourth quarter totaled $38.3 million.

Turning now to Slide 5, I'll discuss our Software Solutions segment results. In the fourth quarter, adjusted revenues for the Software Solutions segment increased 4% to $228.2 million. Our Servicing Software business had adjusted revenue growth of 9%, driven by strong loan growth on our core servicing software solution from new and existing clients, price increases and new client wins.

In our origination software business, adjusted revenues declined 17%, primarily due to the decline in refinance originations. Adjusted EBITDA increased 9% to $135.1 million, while adjusted EBITDA margin was 59.2%, an increase of 240 basis points compared to the prior-year quarter. Full year 2017 adjusted revenues increased 4% to $893.8 million, and adjusted EBITDA increased 7% to $523 million. Adjusted EBITDA margin was 58.5%, an increase of 150 basis points compared to 2016.

Turning to Slide 6. In the fourth quarter, adjusted revenues for the Data and Analytics segment decreased 8% to $40.2 million. Excluding the effect of the Property Insight realignment, Data and Analytics grew 9%, primarily driven by growth in the property data and multiple listing service businesses.

Adjusted EBITDA was $9 million compared to $4.5 million in the prior-year quarter. Adjusted EBITDA margin was 22.4% in the fourth quarter of 2017 compared to 10.3% in the prior-year quarter. Full year 2017 adjusted revenues were $162.3 million compared to $177.5 million last year. Excluding the effect of the Property Insight realignment, adjusted revenues grew 10% versus the prior year. Adjusted EBITDA was $31.9 million compared to $26.5 million, and adjusted EBITDA margin was 19.7% compared to 14.9% in 2016.

Adjusted EBITDA for the corporate segment in the fourth quarter was flat compared to the prior year quarter, reflecting lower incentive-based compensation. Adjusted EBITDA for the corporate segment for the full year 2017 was $2.1 million better than in 2016.

Turning to Slide 7, I'll walk through our capital structure. At the end of December, we had cash and cash equivalents of $16 million. Total debt principal as of December 31 was $1,449,000,000. We had revolver borrowings outstanding of $55 million and $445 million of borrowing capacity remaining under our revolver. Our gross leverage ratio was 2.9x and our net leverage ratio was 2.8x.

Before I discuss our 2018 outlook, I'll take a moment to talk about a reporting change for 2018. On January 1, we realigned the composition of our 2 reportable segments. Certain enterprise business intelligence offerings will be moved to our Software Solutions segment from our Data and Analytics segment. This change aligns with our go-to-market strategy and the internal management of our business operations, including the allocation of resources and assessment of performance. A historical segment information recast to reflect this change will be furnished in an 8-K that we will file after our 10-K is filed later this month.

Turning now to Slide 8, I'll walk through our outlook for full year 2018. GAAP revenues are expected to be in the range of $1,102,000,000 to $1,122,000,000. Adjusted revenues are expected to be in the range of $1,105,000,000 to $1,125,000,000. Adjusted EBITDA is expected to be in the range of $530 million to $545 million, and adjusted EPS is expected to be in the range of $1.73 to $1.81. Before I walk through some modeling details, I'll go through a few items reflecting our outlook.

First, we are not expecting to record any processing or implementation revenues in 2018 relating to the Bank of America MSP implementation based on the current timeline. As we've talked about before, while we are not highly correlated to market volumes, our guidance assumes a little less than 1 percentage point headwind in anticipated decline in origination and default volumes. And 2018 will also include approximately $5 million of incremental expenses related to certain corporate functions that we are taking over, following the spin-off from FNF.

Additional modeling details underlying our outlook are as follows: We currently expect interest expense of approximately $52 million to $54 million; depreciation and amortization expense of $120 million, excluding the net incremental depreciation and amortization resulting from purchase accounting; an adjusted effective tax rate of approximately 27%; and finally, CapEx of approximately $100 million.

Although we do not provide quarterly guidance, I want to provide you with some color as to how we expect to progress through the year. We expect to grow revenues in the first quarter of 2018 to grow about 3% compared to the first quarter last year, and we expect EBITDA to grow about 4%. For the remainder of the year, we would expect to see growth accelerate from Q1 to Q2 and then be more consistent in the third quarter and fourth quarter compared to the prior year on a quarterly basis.

Overall, we are pleased with our fourth quarter and full year results and look forward to another good year for Black Knight in 2018. Before we turn the call over to the operator for questions, Bill would like to take a moment to discuss today's announcement.

Thanks, Kirk. As many of you read earlier, Anthony Jabbour will be assuming the role of Chief Executive Officer for Black Knight. Anthony has a proven track record of growing businesses, establishing and extending client relationships and managing large, complex, technology operations. I have known Anthony and worked with him for over 14 years. I'm confident that Anthony and the rest of the management team will take the company to the next level. Tom and the team have done an excellent job of creating a strategy and structure for our company that does not only increase shareholder value but have set a course for future success. Tom has always exceeded our expectations and we are grateful for his many contributions. I look forward to Tom's input and his involvement with our Board of Directors.

With that, operator, please open the line for Q&A.

(Operator Instructions) Our first question is with Jason Deleeuw from Piper Jaffray.

Tom, it's been nice working with you. Congrats on the new move and welcome aboard, Anthony, looking forward to working with you.

Thank you, Jason.

The first question, just on the BofA implementation, I guess, to the extent that you can give us additional color, is that just a push out of the implementation? Or is there any extra color you can give us on that?

Yes. It's just an extension of the date. As we've talked about in the past, there's -- conversions in general are highly complex. And at a company like BofA, their size and scope, it's even more complex. So it's a shifting of the date, but the same dynamics.

And is that in the $160 million of pipe -- planned implementations of $160 million of revenue by the end of 2020?

It is. Yes.

Yes.

Got it. And there was a headwind of 1.5% of revenue, roughly, maybe a little more in 2017 on implementation delays. Is that expected to flow through in 2018 in the guidance?

Well, the 1.5%, Jason, was relative to our expectations when we set forth at the beginning end of 2017. Now that the year have passed, things have moved around with multiple implementations, and in some cases, it's moved between years. So that 1.5% really has morphed -- it's just part of the $160 million that's going to meter out over the next several years.

Our next question is with Andrew Jeffrey with SunTrust.

Tom, it's been excellent working with you.

Thank you.

When I look at BI sort of broadly, it sounds like you're having some success there. Are there some metrics or data points that you could share with us as to maybe some of the success in ROI that your customers are enjoying on, the Data Hub or the BI platform generally? I'm just trying to frame that up from a sort of sustainable growth standpoint.

Well, listen. Kirk, in his remarks, he talked about moving that product into the platform. So let me explain why we're doing that. Just like in a car, the Data Hub now with the analytics on top of -- a series of analytics on top of the Data Hub, is going to become standard equipment in both our servicing and origination platforms. And that's been a natural kind of progression that we've experienced. It's a core element of our service and origination offering. In particular, when you have, Andrew, when you have like enterprise clients now, you'll see that those deals have the Data Hub, and as an example, the recent one with Citi, and we really think that this product is our core differentiator -- one of our core differentiators in why we're going to be very successful in converting these enterprise clients, because if you think about it, Black Knight is the only company that really can deliver a mortgage platform from cradle-to-grave, right? From front to back, from a smartphone, all the way through servicing and, if necessary, default. The Data Hub and the analytics product is the heart or the brain of that whole operation. So we can, for clients, bring all that data from the origination of that, beginning of the origination of a loan, all the way through servicing and all those transactions into a consolidated Data Hub, and then allow clients to run pretty sophisticated analytics on top of that platform that really break down into 3 categories. One, I'd say, the first is revenue retention and revenue generation. Second would be operational efficiency and excellence. And third would be risk and compliance. So this is a core differentiator for us, and it's really going to be packaged as part of our offering going forward in both platforms. So specifically on the Data Hub, we could probably generate some items over time, but really, we're looking at these deals as bundles now. And the Data Hub and its capabilities are bundled in these new sales and in renewals.

Okay. And is it safe to say that the accounting changes, the realignment is more a reflection of what you just described rather than some leading indicator of a change in your go-to-market?

It's exactly what I just described. It was a product that was initially an innovation and kind of a bet we were making on a particular product space that we thought have a lot of upside. And now, with the feedback from clients and our success in the market, we've now made it a standard offering in our product line.

Okay. And then, one more follow-up, if I may. With regard to the 52 customers that aren't current LOS customers, how do those breakdown between Empower and Empower Now!? How much of penetration of those customers will be reliant on a move down market versus sort of further penetration of this traditional Empower Now! customer base?

Yes. I would say that the vast majority are in the higher tier, Andrew.

Our next question is with Tien-tsin Huang with JPMorgan.

Tom, send my best to you as well, thanks for everything. Just a couple of questions, I think, mostly on the outlook. Just on the, I guess, the revenue guidance at the midpoint below sort of your long-term targets, I heard the Bank of America comments, but anything else that might push you below sort your long-term target? I'm curious, if we're just logically thinking about '19, would it be reasonable to expect that we'd be at the higher end or maybe even above sort of your longer-term targets? Just trying to reconcile those 2 items.

Yes, Tien-tsin, I think, the story with 2018, it's somewhat the last of the headwind from the decline in refinance volumes that, absent that, you'd be much more in the range of the low to midpoint of the long-term guidance range. So I think that's the 2018 issue that will abate because, certainly, as refinance originations are down 40% or so and then down another 29% as projected, the law of large numbers is working with us on that one, the number is just getting, so less of a headwind. And then, it just comes down to timing of implementations. I mean, as you look at how that $160 million will meter out, certainly, there's a chunk of it in 2018, but it actually really does go out over the next several years with, actually, the amount being larger in 2020 than it even is in 2018 with, obviously, a nice slug as well in 2019. So I think, the way that $160 million will meter out, it's actually a platform for growth around our guidance range for the next several years. So actually, we're pretty excited about that. The fact that we have been excited about having that sort of implementation pipeline, obviously, timing we would always likely to become quicker versus later. But its visibility out the next several years that, I think, is pretty rare in the market. So -- but it really -- in 2018, there are some -- it's really about the refinance volumes and then some one-timers from early in '17 that were growing through as well, that at the midpoint, it would look something more like the midpoint of our long-term guidance range versus the lower end.

Got it. No, that makes sense, and the earning power is big, I get for the $160 million and it's up. So we'll just watch the timing. But let me -- as my follow-up. I guess, same question, for the margins. If I did the math right, Kirk, looks like 30 bps of margin expansion for '18 versus '17. Also a little below your long-term target. I heard the $5 million, is there anything else to drive the delta there?

Yes. The other piece, and I alluded to it in the section on corporate, would be the lower incentive compensation. With the results for '17 coming below our initial guidance, you can imagine that had an effect on incentive-based compensation. And so if you were to add that back, that's probably in the area of where the corporate costs are, if not, maybe a bit bigger. And if you sort of exempt those and normalize for those, you actually would be squarely in the middle towards the higher end of our guidance range, which is -- the leverage in the model is there, it absolutely is there. It really comes down to some of those anomalous things like if you adjust for the corporate costs, you are squarely in the middle of that 50 to 100 basis point range. And then, if you adjust for the other piece, like I said, you'll be at the high end, so there really is no change. We're continuing to have high incremental margin on the revenue growth. There's nothing different about that. And then, we also continue to invest, as we've talked about in the remarks. And we'll continue to do that. This is a long-term sustainable business model. And so our goal won't be to have the highest margins we can for a year, but rather, looking to the long term. But even with those investments, we'd be midpoint to higher end of our guidance range for margin expansion.

Our next question is with Bill Warmington with Wells Fargo.

So a question for you on the mortgage exposure. So within originations, are you guys disproportionately exposed to refi versus purchase? Or are you pretty much balanced versus the market?

The piece of the business where we are more affected by refinance originations would be on our exchange platform. That is largely driven by refinance volumes. The rest of the business, we're a little more agnostic. And so -- but as I said, as volumes continue to decline, it has less and less of an effect relative to where we were a year or 2 ago.

Got it. Okay. I also wanted to ask about the rise in the CapEx this year going from $89 million to $100 million. It's run -- is that level about -- well, first of all, to ask about why that's going up? And then, second, to ask if that level of about 9% of revenue is where we should think that's going to stay?

Yes. We don't look at it as a percent of revenue per se. What we do is, actually, a bottoms-up view of where we see primarily investments that we want to make in our products, which then manifests itself as capitalized software and it's included in CapEx. And we look at the infrastructure and see how the growth of the business requires additional infrastructure where we have end-of-life equipment, et cetera. That increase, frankly, is if you think about the tax rate change going from, for us, from 37% to 27%, and what effect that has on our profit and cash flow, as we were looking at our projects, frankly, we took an opportunity to invest incrementally in our products. And so we pulled -- we looked at some projects that, we think, are important to the company around platform modernization and digital and some other initiatives and increased our CapEx from $90 million to $100 million. That level is pretty healthy for us. And so as we look forward, I wouldn't necessarily assume that, that percent of revenue is what we will need as we grow. We're going to, each and every year, evaluate the projects that we have, make sure that we're investing in the highest return areas. And the number's going to be what it's going to be.

Okay. And then, also, one housekeeping item. It looked like deferred revenue was up pretty strongly, up about 30%. I just wanted to ask if you could talk a little bit about what's behind that.

That's relates to -- I mean, that is a function of continued growth of that sold implementation pipeline. So as we charge the implementation, during implementation, what we get paid, goes on -- gets deferred as well as the cost. And then, they both get recognized as post go live. So growth in deferred revenue, over time, is a very leading -- positive leading indicator of future growth. And so you would expect that, that would grow as the implementation pipeline grows.

Our next question is with David Ridley-Lane from Bank of America Merrill Lynch.

(inaudible) into revenues, so this -- I did want to ask the question. Is there some conservatism that's baked into your revenue guidance? Have you allowed for more slippage on implementation timelines versus prior years, for example?

So as we planned at the midpoint of the range, we took into account our best estimate of the implementation. The situation we find ourself in this year compared to last year is, naturally, as time passed, we're further along in those implementations, which would mean we would expect there'd be less variability. But we certainly made our best estimate as to when those would come and, in some cases, a little bit of allowing for a bit of slippage because we had seen it before. But we'll see where that comes in. But it kind of get at the point of, if we're planning at the midpoint, what would make us go higher or lower within that range. And there's an element of implementation timing that could make us go a little bit better and, certainly, could go the other direction as well if there are delays. But we don't expect it from -- to the degree of what we had last year.

And then, on the $5 million of corporate overhead expenses coming over following the spin-off, are those costs that you could conceivably work down over time? Or should we think of them more as run rate normal course of business?

There are elements that would be run rate normal course of business, things like insurance. So as we separated the insurance policy, the director and officer and error and omission, those types of things that, I think, we did pretty well on, those are pretty run rate costs. But certainly, as we bring over other corporate functions and build them up initially, we would certainly expect to work towards being more efficient in those areas. And so without committing to it, David, there certainly is that possibility. And as we do in all parts of the corporate functions as well as the businesses, we're always going to look to be more efficient and, in particular, we manage the corporate costs as well. And so we would certainly seek to do that.

Okay. And last one for me, if I could. Within the 2018 guidance, sort of what's your anticipated growth on the data analytics side?

With the reconstructed, I'll say -- or recast data and analytics business that does include the enterprise business intelligence components, I would expect it to be in the low- to mid-single digits.

Our next question is with John Campbell with Stephens Inc.

Tom, I'd definitely like to echo the sentiments. You're a key part of the successful IPO and getting the company to the point it is today. So great work and best luck in the future. But guys, just on the guidance, I think, there's been a couple of questions around $160 million of sold pipeline revenue. But Kirk, I don't know how much you can give us, but just any kind of rough idea of how much that actually falls into '18? Is it just a sliver or is it half of it?

The way to think about it as of today, and I will caveat that with as of today, I would say, a little less than 1/3 is what we would expect to see in 2018. A little bit more than -- a little bit less than 1/4 in 2019, a little less than 25% in 2019. A little bit more than a 1/3 in 2020. And then, the balance would be in 2021. That's the way we see it today as of the implementation timelines that we believe will take place. But subject to change, of course.

That's very, very helpful. And then, on the origination win, that was a fantastic pick up by you guys. Just curious about kind of what drove that win? What was Citi looking for that you guys could provide that others couldn't? Any kind of color there?

As I tried to, John, highlight in the comments, we made some decisions back 4 years ago about where we thought we could take the company. And when we looked at our assets, origination business, servicing business, great servicing franchise, very powerful and then the data and analytics business, listen, it struck us right away that we could be the only front-to-back provider of technology in the mortgage business at the highest level. So I mean, I think that's the important part, too. And so when you look at -- I know these guys are going to laugh at me when I gave my analogies, but I gave this analogy before. If you look at a client like a Citi who wants to pick 3 core technologies for their business, right? So you could pick MSP for servicing and you can choose to pick a different vendor for origination and a different vendor for data. The problem is, like the body, I give the body analogy, the organs, well, one of the things the organs need is it needs a circulatory system to connect them and that it needs the brain to operate them. If you pick a third -- a different origination platform than MSP and you pick MSP, and then you pick, say, CoreLogic as an example, in data, the client has to put the circulatory system together and they have to build the data, they have to build the brain. When you get Black Knight's product offering now, we're differentiated in our ability to not only deliver all the connectivity but to deliver the data consolidation across both servicing and originations. And that's why we're so excited, John. We are unique in that way. And it took a lot of work and it took a lot of investment, but we integrated the products, we built new products that we didn't have, we acquired products like Motivity as an example for our dashboards and to sit on top of our Data Hub. And now, we have been offering that, frankly, no other vendor front to back could match. And so, I think, Citi was very excited about that. And then, the last thing about Black Knight that I continue to stress, and this is -- it's not something we see in a brochure necessarily, but when you can deliver implementations to Chase and Wells Fargo and Bank of America at those volumes, at those scales, right? And you have a proven ability to successfully implement and your product as a proven ability to scale, that's a big differentiator and that's Black Knight's -- that's our strike zone. So we're really excited about that. And the fact that many companies are interested in having this conversation because, frankly, their focus now, not only on risk, as they always have been, but they need to get their cost down. And one of the things we do with that front-to-back platform is we get their cost down.

Our next question is with Bose George with KBW.

Actually, I wanted to ask about uses of capital. You repurchased some shares this quarter. Can you just remind us how you think about repurchase versus other uses of capital?

Sure. Our approach has been pretty consistent for the -- since we -- since 2015, which is, first and foremost, we look to invest in the business through infrastructure investments and product development, and we talked about the CapEx for 2018 earlier. I mean, the other dimensions are managing our debt balance, which we've done a good job of and we have managed leverage down from 4.5x down to 2.8 net at the end of the quarter. So we'll focus on that -- on managing that. And then, M&A is going to be a focus area for us. It has been. We did 2 deals in 2016, as you know, Bose. So we'll continue to look for good assets that can catalyze growth and be good and fill product gaps. And then, share repurchase is the other dimension. And you saw us do that, we bought back 3.2 million shares this year in 2 different ways. We were in the market pretty regularly in the second quarter and then we had an opportunity when Thomas H. Lee did a block trade back in November. As we look to this year from a share repurchase perspective, I think, you can expect to see us in the market more on an ongoing fashion as opposed to event-driven would be the expectation, all the while still looking for assets to add to the product suite that -- so that we can accelerate growth in the business.

Okay. Great. That's helpful. And then, actually, just switching back to the earlier question on the 52 MSP clients who are not on Empower right now, actually, how many of them are on some other loan operating system -- origination system, sorry?

What do you mean? I mean, obviously, all of them are on a different one than Empower.

Sorry. I suppose are on an external system versus working with -- or sorry, how many of them are using an internal system versus working with other vendors?

Yes. I think, I can't give you that exact number at the moment, that's something we could probably scoop out. But what the reality is, the largest ones and the ones we most desire are on internal systems, for the most part. So we love that scenario where a client is building and supporting an entire platform just for themselves. And those business cases are always fairly compelling for us. So a lot of the big ones have their own. Some of the others, frankly, have what's the genesis of a third-party vendor, but have customized that platform to such a degree that, in essence, it's also unique to them. They need to maintain it. So that's another big opportunity for us. And then, some of them do use other third-party competitors.

Okay. Great. And actually, one question on the guidance. In the prepared remarks, did you say the headwind from volumes is declining in '18, and '17 was 1%?

Yes, a little less than 1% from lower origination, lower default volumes.

(Operator Instructions) Our next question is with Jim Schneider with Goldman Sachs.

I was wondering if you can maybe comment on for 2018, what your expectation would be in terms of the amount that pricing and loan growth would contribute positively to revenue, understanding that the decline in originations is a 1% headwind.

Yes. So the pricing, we typically have targeted sort of 1.5% to 2% from price and so that's typically where it's been. From an organic loan growth perspective, we've targeted 300,000 to 500,000 loans, and that's typically where it's been the last several years, and that's from existing clients. So the growth with new clients will be embedded in that $160 million of sold pipeline that we talked about.

That's helpful. And then, maybe -- could you maybe just comment on your ability to kind of organically grow the pipeline? You've done a really good job there with growing from $130 million only about a year ago to $160 million. Do you think that kind of pace of pipeline growth can kind of keep up at this stage? And where do you see kind of incremental share opportunities across origination versus servicing?

Well, I mean, Jim, as you saw that the -- from the spin-off date until now, not too long, the sold pipeline grew nicely. As background information, these last 2 years, 2 years ago was an absolute record for the company in sales. And last year was not far behind from the prior year. And so we've had some really strong sales years the last couple of years. And I'm pretty optimistic about the pipeline. We have a demand environment right now that, I think, plays to Black Knight's strength. Obviously, in servicing, we continue to add new clients, even though everybody thinks we're done. We continue to add new clients to MSP each year. The home equity opportunity is very strong for us, as you know. We're up to, when we implement all, 30% market share, but we think it's possible to get to similar market shares that we have in the first loans, which should be in the 60%, 70% level. We have a bunch of new solutions that are early days, our claims product, our loss mitigation product that we're very optimistic about, and we're building digital capabilities in servicing as well. In originations, we see interest in the top 10 banks in Empower. Empower, like MSP, is bringing nice pipeline in putting equity products on that platform, home equity products. So it's not just for the straight origination business. And now we add home equity as well, and we gave some examples. We built that digital -- while we've worked with providers and have the digital capability in the platform in which we get paid for. And we have opportunities in Empower Now!. And then, lastly, in data and analytics, I mean, we have been very successful and I believe we'll continue to be in cross-selling D&A products into our existing origination and servicing clients. I think we've proven that out and I expect that to continue. And as we mentioned before, our Data Hub is gaining a lot of traction. And I'm very excited about getting that product in some of the largest banks in the country.

Our next question is with Stephen Sheldon with William Blair.

First, I know it's recent, but has the origination contracts win with Citi, has that pushed the conversations any further with the other top 10 banks? Or do you think they may wait to see how that plays out?

That's a great question. And I would say that anytime you get an account like that, it makes others ask questions. And to your point, I think it's when you get the deal is one thing, when you implement the deal, it's another. As I mentioned in the opening remarks, when we converted Chase's home equity portfolio at that scale on to MSP and proved it out, that opened up dialogue with other large players. And so, I think, Stephen, all these deals, the deal helps and the implementation helps and then it builds momentum. I mean, that is, frankly, how the MSP product grew over time. And some of the tipping points, clearly, we're doing it at the largest volume, the largest scale in the industry.

Okay. That's helpful. And then, it's nice to see some acceleration in the servicing business in the quarter against a slightly more difficult comp. I mean, can you maybe walk through the drivers of the acceleration in 9% from the prior quarter? Was there any impact from recent implementations, or maybe less of a drag from specialty servicing? Just any color on the acceleration there?

That business is growing based upon loan growth on the platform, which we saw the obvious price increases and there was an implementation that went live in the fourth quarter. So I think, it's a combination of all that. But we're doing a good job in selling new solutions on the specialty side as well. So it's actually a combination of all those things.

Our next question is with Ashish Sabadra with Deutsche Bank.

My question was a clarification on the implementation timeline that you gave. When you talked about 1/3 of the implementation being like going live in 2018, you're not necessarily talking about that much revenue has being recognized in '18? That's the pipeline that goes live and you'll get some of the revenues in '18 but a good chunk in '19. Is that the right way to think about it?

I was actually splitting the $160 million. So I was actually focused on that dollar amount and how that dollar amount would meter out over the next '18, '19, '20, with the stub in 2021. So a little less than -- what I said was a little less than 1/3 of that we would expect to see in the revenue in 2018.

Okay. Because a little less than 1/3 would imply somewhere in the range of $50 million of revenues coming from implementation, and the guidance implies somewhere around $60 million of incremental revenues at the midpoint. So my question would be, does the core only contribute like $10 million? Does the core business, prior to any implementation, that would only contribute like $10 million, if my math is right and if my calculation is right?

So the way to think about the bridge, Ashish, is to say, so you've got that less than 1/3 number, right? You've got that component, you have the price increase, that would be additive there as well, you have the market headwind that's a little less than a point as we talked about. We've talked in the past about attrition, or I'll say non-retention, say, we talk about retention of call it 99% or so, so there's a little bit there. And then, the rest of that bridge, there's some one-timers that can vary from year-to-year and then there's sort of a sell and deliver, which maybe is what you're talking about being the core business. I wouldn't necessarily describe it that way. I'd really call it that's the in-year revenue we need to go sell and deliver. That would be remaining component as you think about it, at the midpoint.

That's helpful. Question on the tax rate as well. So the benefit of the tax reform lowers the tax rate. But companies with 100% U.S. income tend to have more lower tax rate. Is there anything imputed in the assumption for the 27% tax rate?

Yes. If you start at our 37%, which is roughly what we were on an adjusted basis for 2017, you've got the 14% reduction in the federal rate that the add back, so to speak, would be the benefits for federal purposes of the state tax, because the federal rate's going down, the federal benefit for the state income tax is a little bit lower, so that adds about a point. The elimination of the Production Activities Credit, the so-called Section 199 deduction that we had been receiving the benefit of, that went away. That's a couple points. And then, there's really some other knicks and knacks, including the elimination of the 162(m) exceptions for executive officer compensation, let's call it another point. So that's how you get from 37% down to 27%.

Okay. That's helpful. And maybe one final question is, the banks in general have talked about reinvesting like roughly 25% of their tax saving in growth initiative, and I believe mortgage would definitely be one of the areas that you would see some investment. So how should we think about that benefiting Black Knight in terms of potentially more spend on D&A or more software implementation, more features and functionalities being added onto the existing products that banks may adopt?

I think, depending on the client, we're seeing -- as I mentioned before, we had really good sales last year, we got -- we're seeing a really good pipeline this year. I think the clients are in an investment mode. I think the optimism in the business is up. And so, I think, market conditions for us into our client base is that I see a very strong market in '18.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the call back over to Kirk Larsen, CFO, for closing remarks.

Thank you. We appreciate everyone listening in and thanks again for joining. Have a great rest of your day.