Black Knight, Inc. - Quarter Report: 2021 June (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2021
OR
Commission File Number 001-37394
Black Knight, Inc.
______________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
(904) 854-5100
___________________________________________________________________
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
There were 156,630,031 shares outstanding of the Registrant’s common stock as of August 4, 2021.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 2021
TABLE OF CONTENTS
i
Part I: FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements (Unaudited)
BLACK KNIGHT, INC.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
June 30, 2021 | December 31, 2020 | |||||
ASSETS | ||||||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | 88.7 | $ | 34.7 | ||
Trade receivables, net |
| 183.6 |
| 182.2 | ||
Prepaid expenses and other current assets |
| 86.3 |
| 70.4 | ||
Receivables from related parties |
| 10.5 |
| — | ||
Total current assets |
| 369.1 |
| 287.3 | ||
Property and equipment, net |
| 157.5 |
| 163.1 | ||
Computer software, net |
| 496.5 |
| 498.3 | ||
Other intangible assets, net |
| 624.6 |
| 692.3 | ||
Goodwill |
| 3,649.6 |
| 3,613.4 | ||
Investments in unconsolidated affiliates |
| 475.8 |
| 470.5 | ||
Deferred contract costs, net |
| 179.6 |
| 172.3 | ||
Other non-current assets |
| 213.2 |
| 193.3 | ||
Total assets | $ | 6,165.9 | $ | 6,090.5 | ||
LIABILITIES AND EQUITY |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Trade accounts payable and other accrued liabilities | $ | 73.8 | $ | 88.1 | ||
Accrued compensation and benefits |
| 91.0 |
| 79.3 | ||
Current portion of debt |
| 19.0 |
| 73.0 | ||
Deferred revenues |
| 68.7 |
| 50.9 | ||
Total current liabilities |
| 252.5 |
| 291.3 | ||
Deferred revenues |
| 82.7 |
| 92.7 | ||
Deferred income taxes |
| 282.1 |
| 284.0 | ||
Long-term debt, net of current portion |
| 2,216.3 |
| 2,121.9 | ||
Other non-current liabilities |
| 90.1 |
| 94.9 | ||
Total liabilities |
| 2,923.7 |
| 2,884.8 | ||
Commitments and contingencies (Note 11) |
|
|
|
| ||
Redeemable noncontrolling interests |
| 578.0 |
| 578.0 | ||
Equity: |
|
|
|
| ||
Common stock; $0.0001 par value; 550,000,000 shares authorized; 160,040,598 shares issued and 156,635,838 shares outstanding as of June 30, 2021, and 160,085,413 shares issued and 157,014,712 shares outstanding as of December 31, 2020 |
| — |
| — | ||
Preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of June 30, 2021 and December 31, 2020 |
| — |
| — | ||
Additional paid-in capital |
| 2,021.0 |
| 2,053.7 | ||
Retained earnings |
| 852.4 |
| 757.4 | ||
Accumulated other comprehensive loss |
| (32.6) |
| (38.8) | ||
Treasury stock, at cost, 3,404,760 shares as of June 30, 2021 and 3,070,701 shares as of December 31, 2020 |
| (176.6) |
| (144.6) | ||
Total shareholders’ equity |
| 2,664.2 |
| 2,627.7 | ||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 6,165.9 | $ | 6,090.5 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
1
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(In millions, except per share data)
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Revenues | $ | 361.3 | $ | 293.1 | $ | 711.0 | $ | 583.8 | ||||
Expenses: |
|
|
|
|
|
|
| |||||
Operating expenses |
| 197.0 | 155.5 |
| 383.2 |
| 317.9 | |||||
Depreciation and amortization |
| 90.4 | 58.6 |
| 178.2 |
| 116.3 | |||||
Transition and integration costs |
| 4.3 | 2.5 |
| 12.2 |
| 4.9 | |||||
Total expenses |
| 291.7 |
| 216.6 |
| 573.6 |
| 439.1 | ||||
Operating income |
| 69.6 |
| 76.5 |
| 137.4 |
| 144.7 | ||||
Other income and expense: |
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| (20.9) | (13.0) |
| (41.2) |
| (27.7) | |||||
Other (expense) income, net |
| (1.0) | 18.8 |
| (4.2) |
| 18.0 | |||||
Total other (expense) income, net |
| (21.9) |
| 5.8 |
| (45.4) |
| (9.7) | ||||
Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates |
| 47.7 |
| 82.3 |
| 92.0 |
| 135.0 | ||||
Income tax expense |
| 10.5 | 17.2 | 15.7 |
| 25.4 | ||||||
Earnings before equity in (losses) earnings of unconsolidated affiliates |
| 37.2 |
| 65.1 |
| 76.3 |
| 109.6 | ||||
Equity in (losses) earnings of unconsolidated affiliates, net of tax |
| (5.0) | (26.0) |
| 1.4 |
| (20.4) | |||||
Net earnings |
| 32.2 |
| 39.1 |
| 77.7 |
| 89.2 | ||||
Net losses attributable to redeemable noncontrolling interests |
| 7.5 | — |
| 16.1 |
| — | |||||
Net earnings attributable to Black Knight | $ | 39.7 | $ | 39.1 | $ | 93.8 | $ | 89.2 | ||||
Other comprehensive earnings (loss): |
|
|
|
|
|
|
|
| ||||
Unrealized holding (losses) gains, net of tax(1) |
| (0.2) | (2.6) |
| 0.3 |
| (24.2) | |||||
Reclassification adjustments for losses included in net earnings, net of tax(2) |
| 4.0 | 3.2 |
| 7.9 |
| 4.4 | |||||
Total unrealized gains (losses) on interest rate swaps, net of tax |
| 3.8 |
| 0.6 |
| 8.2 |
| (19.8) | ||||
Foreign currency translation adjustment, net of tax (3) |
| (0.1) | — |
| (0.4) |
| (0.2) | |||||
Unrealized gains (losses) on investments in unconsolidated affiliates(4) |
| 1.5 | (1.5) |
| (1.6) |
| (1.7) | |||||
Other comprehensive earnings (loss) |
| 5.2 |
| (0.9) |
| 6.2 |
| (21.7) | ||||
Comprehensive earnings |
| 37.4 |
| 38.2 |
| 83.9 |
| 67.5 | ||||
Net losses attributable to redeemable noncontrolling interests |
| 7.5 | — |
| 16.1 |
| — | |||||
Comprehensive earnings attributable to Black Knight | $ | 44.9 | $ | 38.2 | $ | 100.0 | $ | 67.5 | ||||
Net earnings per share attributable to Black Knight common shareholders: |
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.26 | $ | 0.26 | $ | 0.60 | $ | 0.60 | ||||
Diluted | $ | 0.25 | $ | 0.26 | $ | 0.60 | $ | 0.60 | ||||
Weighted average shares of common stock outstanding (see Note 5): |
|
|
|
|
| |||||||
Basic |
| 155.4 |
| 149.2 |
| 155.5 |
| 148.6 | ||||
Diluted |
| 155.7 |
| 150.0 |
| 155.8 |
| 149.3 |
(1) | Net of income tax benefit of $0.1 million and income tax expense of $0.1 million for the three and six months ended June 30, 2021, respectively, and income tax benefit of $0.9 million and $8.2 million for the three and six months ended June 30, 2020, respectively. |
(2) | Amounts reclassified to net earnings relate to losses on interest rate swaps and are included in Interest expense, net above. Amounts are net of income tax benefit of $1.4 million and $2.7 million for the three and six months ended June 30, 2021, respectively, and $1.1 million and $1.5 million for the three and six months ended June 30, 2020, respectively. |
(3) | Net of income tax benefit of less than $0.1 million for the three and six months ended June 30, 2021 and $0.1 million for the six months ended June 30, 2020. |
(4) | Net of income tax expense of $0.5 million and income tax benefit of $0.5 million for the three and six months ended June 30, 2021, respectively, and income tax benefit of $0.5 million and $0.6 million for the three and six months ended June 30, 2020, respectively. |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
2
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Equity
(In millions)
(Unaudited)
Three months ended June 30, 2021 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
| Additional | other | | Total | Redeemable | ||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | noncontrolling | |||||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | ||||||||
Balance, March 31, 2021 |
| 160.0 | $ | — | $ | 2,017.0 | $ | 812.0 | $ | (37.8) |
| 3.4 | $ | (176.5) | $ | 2,614.7 | $ | 578.0 | |||||||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — |
| — |
| (7.5) |
| — |
| — |
| — |
| — |
| (7.5) |
| 7.5 | |||||||
Grant of restricted shares of common stock |
| — |
| — |
| (1.3) |
| — |
| — |
| — |
| 1.3 |
| — |
| — | |||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.4 |
| — |
| — |
| — |
| (0.4) |
| — |
| — | |||||||
Tax withholding payments for restricted share vesting |
| — |
| — |
| (1.7) |
| — |
| — |
| — |
| — |
| (1.7) |
| — | |||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 1.0 |
| — |
| — |
| — |
| (1.0) |
| — |
| — | |||||||
Equity-based compensation expense |
| — |
| — |
| 13.1 |
| — |
| — |
| — |
| — |
| 13.1 |
| — | |||||||
Net earnings (losses) |
| — |
| — |
| — |
| 39.7 |
| — |
| — |
| — |
| 39.7 |
| (7.5) | |||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 0.7 |
| — |
| — |
| — |
| 0.7 |
| — | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.1) |
| — |
| — |
| (0.1) |
| — | |||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 3.8 |
| — |
| — |
| 3.8 |
| — | |||||||
Other comprehensive gains on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| 1.5 |
| — |
| — |
| 1.5 |
| — | |||||||
Balance, June 30, 2021 |
| 160.0 | $ | — | $ | 2,021.0 | $ | 852.4 | $ | (32.6) |
| 3.4 | $ | (176.6) | $ | 2,664.2 | $ | 578.0 |
Three months ended June 30, 2020 | ||||||||||||||||||||||
Accumulated other | ||||||||||||||||||||||
Common stock | Additional | Retained | comprehensive | Treasury stock | Total shareholders’ | |||||||||||||||||
| Shares |
| $ |
| paid-in capital |
| earnings |
| loss |
| Shares |
| $ |
| equity | |||||||
Balance March 31, 2020 |
| 153.0 | $ | — | $ | 1,562.7 | $ | 540.0 | $ | (41.0) |
| 3.0 | $ | (142.1) | $ | 1,919.6 | ||||||
Issuance of common stock, net of underwriters' discount and issuance costs | 7.1 | — | 484.2 | — | — | — | — | 484.2 | ||||||||||||||
Grant of restricted shares of common stock |
| — |
| — |
| (0.1) |
| — |
| — |
| — |
| 0.1 |
| — | ||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.1 |
| — |
| — |
| — |
| (0.1) |
| — | ||||||
Tax withholding payments for restricted share vesting |
| — |
| — |
| (1.5) |
| — |
| — |
| — |
| — |
| (1.5) | ||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 1.0 |
| — |
| — |
| — |
| (1.0) |
| — | ||||||
Equity-based compensation expense |
| — |
| — |
| 9.5 |
| — |
| — |
| — |
| — |
| 9.5 | ||||||
Net earnings |
| — |
| — |
| — |
| 39.1 |
| — |
| — |
| — |
| 39.1 | ||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 3.2 |
| — |
| — |
| — |
| 3.2 | ||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 0.6 |
| — |
| — |
| 0.6 | ||||||
Other comprehensive loss on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| (1.5) |
| — |
| — |
| (1.5) | ||||||
Balance, June 30, 2020 |
| 160.1 | $ | — | $ | 2,055.9 | $ | 582.3 | $ | (41.9) |
| 3.0 | $ | (143.1) | $ | 2,453.2 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Equity (Continued)
(In millions)
(Unaudited)
Six months ended June 30, 2021 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Additional | other | Total | Redeemable | ||||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | noncontrolling | |||||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity |
| interests | ||||||||
Balance, December 31, 2020 |
| 160.1 | $ | — | $ | 2,053.7 | $ | 757.4 | $ | (38.8) |
| 3.1 | $ | (144.6) | $ | 2,627.7 | $ | 578.0 | |||||||
Fair value adjustment to redeemable noncontrolling interests in Optimal Blue Holdco, LLC |
| — |
| — |
| (16.1) |
| — |
| — |
| — |
| — |
| (16.1) |
| 16.1 | |||||||
Grant of restricted shares of common stock |
| — |
| — |
| (26.6) |
| — |
| — |
| (0.5) |
| 26.6 |
| — |
| — | |||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.5 |
| — |
| — |
| — |
| (0.5) |
| — |
| — | |||||||
Tax withholding payments for restricted share vesting |
| (0.1) |
| — |
| (24.4) |
| — |
| — |
| — |
| — |
| (24.4) |
| — | |||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 11.4 |
| — |
| — |
| 0.2 |
| (11.4) |
| — |
| — | |||||||
Equity-based compensation expense |
| — |
| — |
| 22.5 |
| — |
| — |
| — |
| — |
| 22.5 |
| — | |||||||
Net earnings (losses) |
| — |
| — |
| — |
| 93.8 |
| — |
| — |
| — |
| 93.8 |
| (16.1) | |||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 1.2 |
| — |
| — |
| — |
| 1.2 |
| — | |||||||
Purchases of treasury stock |
| — |
| — |
| — |
| — |
| — |
| 0.6 |
| (46.7) |
| (46.7) |
| — | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.4) |
| — |
| — |
| (0.4) |
| — | |||||||
Unrealized gains on interest rate swaps, net |
| — |
| — |
| — |
| — |
| 8.2 |
| — |
| — |
| 8.2 |
| — | |||||||
Other comprehensive loss on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| (1.6) |
| — |
| — |
| (1.6) |
| — | |||||||
Balance, June 30, 2021 |
| 160.0 | $ | — | $ | 2,021.0 | $ | 852.4 | $ | (32.6) |
| 3.4 | $ | (176.6) | $ | 2,664.2 | $ | 578.0 |
Six months ended June 30, 2020 | ||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||||
Common stock | paid-in | Retained | comprehensive | Treasury stock | shareholders’ | |||||||||||||||||
| Shares |
| $ |
| capital |
| earnings |
| loss |
| Shares |
| $ |
| equity | |||||||
Balance December 31, 2019 |
| 153.1 | $ | — | $ | 1,586.8 | $ | 490.6 | $ | (20.2) |
| 3.4 | $ | (158.7) | $ | 1,898.5 | ||||||
Effect of CECL adoption |
| — |
| — |
| — |
| (1.1) |
| — |
| — |
| — |
| (1.1) | ||||||
Adjusted balance at January 1, 2020 |
| 153.1 |
| — |
| 1,586.8 |
| 489.5 |
| (20.2) |
| 3.4 |
| (158.7) |
| 1,897.4 | ||||||
Issuance of common stock, net of underwriters' discount and issuance costs |
| 7.1 |
| — |
| 484.2 |
| — |
| — |
| — |
| — |
| 484.2 | ||||||
Grant of restricted shares of common stock |
| — |
| — |
| (24.6) |
| — |
| — |
| (0.5) |
| 24.6 |
| — | ||||||
Forfeitures of restricted shares of common stock |
| — |
| — |
| 0.3 |
| — |
| — |
| — |
| (0.3) |
| — | ||||||
Tax withholding payments for restricted share vesting |
| (0.1) |
| — |
| (19.7) |
| — |
| — |
| 0.1 |
| — |
| (19.7) | ||||||
Vesting of restricted shares granted from treasury stock |
| — |
| — |
| 8.7 |
| — |
| — |
| — |
| (8.7) |
| — | ||||||
Equity-based compensation expense |
| — |
| — |
| 20.2 |
| — |
| — |
| — |
| — |
| 20.2 | ||||||
Net earnings |
| — |
| — |
| — |
| 89.2 |
| — |
| — |
| — |
| 89.2 | ||||||
Equity-based compensation expense of unconsolidated affiliates |
| — |
| — |
| — |
| 3.6 |
| — |
| — |
| — |
| 3.6 | ||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| (0.2) |
| — |
| — |
| (0.2) | ||||||
Unrealized losses on interest rate swaps, net |
| — |
| — |
| — |
| — |
| (19.8) |
| — |
| — |
| (19.8) | ||||||
Other comprehensive loss on investments in unconsolidated affiliates |
| — |
| — |
| — |
| — |
| (1.7) |
| — |
| — |
| (1.7) | ||||||
Balance, June 30, 2020 |
| 160.1 | $ | — | $ | 2,055.9 | $ | 582.3 | $ | (41.9) |
| 3.0 | $ | (143.1) | $ | 2,453.2 |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
BLACK KNIGHT, INC.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Six months ended June 30, | |||||
2021 | 2020 | |||||
Cash flows from operating activities: |
|
| ||||
Net earnings | $ | 77.7 | $ | 89.2 | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
| |||
Depreciation and amortization |
| 178.2 | 116.3 | |||
Amortization of debt issuance costs and original issue discount |
| 2.0 | 1.4 | |||
Loss on extinguishment of debt | 2.5 | — | ||||
Deferred income taxes, net |
| (3.9) | 0.9 | |||
Equity in (earnings) losses of unconsolidated affiliates, net of tax |
| (1.4) | 20.4 | |||
Equity-based compensation |
| 22.5 | 20.2 | |||
Changes in assets and liabilities, net of acquired assets and liabilities: |
|
|
| |||
Trade receivables, including receivables from related parties |
| (10.7) | 4.9 | |||
Prepaid expenses and other assets |
| (36.8) | (13.9) | |||
Deferred contract costs |
| (24.1) | (26.0) | |||
Deferred revenues |
| 6.4 | (10.2) | |||
Trade accounts payable and other liabilities |
| (13.2) | (7.9) | |||
Net cash provided by operating activities |
| 199.2 | 195.3 | |||
Cash flows from investing activities: |
|
|
| |||
Additions to property and equipment |
| (11.5) | (12.6) | |||
Additions to computer software |
| (45.4) | (38.2) | |||
Business acquisitions, net of cash acquired |
| (48.3) | (50.4) | |||
Asset acquisitions |
| (10.0) | (15.0) | |||
Other investing activities | (1.2) | 8.4 | ||||
Net cash used in investing activities |
| (116.4) | (107.8) | |||
Cash flows from financing activities: |
|
|
| |||
Net proceeds from issuance of common stock, before offering expenses |
| — | 484.6 | |||
Costs directly associated with issuance of common stock |
| — | (0.4) | |||
Revolver borrowings |
| 260.3 | 266.6 | |||
Revolver payments |
| (210.0) | (576.6) | |||
Term loan borrowings | 1.6 | — | ||||
Term loan payments |
| — | (23.4) | |||
Purchases of treasury stock |
| (46.7) | — | |||
Tax withholding payments for restricted share vesting |
| (24.4) | (19.7) | |||
Finance lease payments |
| (2.0) | (5.8) | |||
Debt issuance costs paid |
| (7.6) | — | |||
Net cash (used in) provided by financing activities |
| (28.8) | 125.3 | |||
Net increase in cash and cash equivalents |
| 54.0 | 212.8 | |||
Cash and cash equivalents, beginning of period |
| 34.7 | 15.4 | |||
Cash and cash equivalents, end of period | $ | 88.7 | $ | 228.2 | ||
Supplemental cash flow information: |
|
|
| |||
Interest paid, net | $ | (40.0) | $ | (26.1) | ||
Income taxes paid, net | $ | (42.7) | $ | (5.4) |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1)Basis of Presentation and Overview
The accompanying Condensed Consolidated Financial Statements (Unaudited) of Black Knight, Inc. (“BKI”) and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our") were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated.
The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission ("SEC") on February 26, 2021 and other filings with the SEC.
Description of Business
We are a leading provider of integrated software, data and analytics solutions to the mortgage and consumer loan, real estate and capital markets verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. We are committed to being a premier business partner that clients rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class software, services and insights with a relentless commitment to excellence, innovation, integrity and leadership.
Principles of Consolidation
The Condensed Consolidated Financial Statements (Unaudited) include the accounts of BKI, its wholly-owned subsidiaries and non-wholly owned subsidiaries in which we have a controlling financial interest either through voting rights or means other than voting rights. Intercompany transactions and balances have been eliminated in consolidation. Where our ownership interest in a consolidated subsidiary is less than 100%, the noncontrolling interests’ share of these non-wholly owned subsidiaries is reported in our Condensed Consolidated Balance Sheets (Unaudited) as a separate component of equity or within temporary equity. The noncontrolling interests’ share of the net earnings (loss) of these non-wholly owned subsidiaries is reported in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) as an adjustment to our net earnings to arrive at Net earnings attributable to Black Knight.
We consolidate variable interest entities (“VIEs”) if we are considered the primary beneficiary because we have (a) the power to direct matters that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
Optimal Blue Holdco, LLC (“Optimal Blue Holdco”), a non-wholly owned subsidiary, is considered a VIE. We are the primary beneficiary of Optimal Blue Holdco through our controlling interest and our rights established in the Second Amended and Restated Limited Liability Company Agreement of Optimal Blue Holdco dated November 24, 2020 (the “OB Holdco LLC Agreement”). As such, we control Optimal Blue Holdco and its subsidiaries and consolidate its financial position and results of operations. As of June 30, 2021 and December 31, 2020, we own 60% of Optimal Blue Holdco. Redeemable noncontrolling interests represent the collective 40% equity interest in Optimal Blue Holdco owned by Cannae Holdings, LLC ("Cannae") and affiliates of Thomas H. Lee Partners, L.P. ("THL"). As these redeemable noncontrolling interests provide for redemption features not solely within our control, they are presented outside of shareholders' equity.
Reporting Segments
We conduct our operations through two reporting segments: (1) Software Solutions and (2) Data and Analytics. See further discussion in Note 14 — Segment Information.
6
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Reclassification
Certain reclassifications have been made to the prior year amounts to conform to the classifications used in 2021. Certain receivables previously included in Trade and other receivables, including receivables from related parties on our Condensed Consolidated Statements of Cash Flows (Unaudited) are now included in Prepaid expenses and other assets. We also reclassed certain deferred compensation plan assets and liabilities between Prepaid expenses and other assets and Trade accounts payable and other liabilities on our Condensed Consolidated Statements of Cash Flows (Unaudited).
(2)Condensed Consolidated Financial Statement Details
Cash and Cash Equivalents
Cash and cash equivalents are unrestricted and include the following (in millions):
June 30, 2021 |
| December 31, 2020 | ||||
Cash | $ | 16.5 | $ | 27.1 | ||
Cash equivalents |
| 72.2 |
| 7.6 | ||
Cash and cash equivalents | $ | 88.7 | $ | 34.7 |
Trade Receivables, Net
A summary of Trade receivables, net of allowance for credit losses is as follows (in millions):
| ||||||
June 30, 2021 |
| December 31, 2020 | ||||
Trade receivables — billed | $ | 137.5 | $ | 136.4 | ||
Trade receivables — unbilled |
| 48.4 |
| 47.9 | ||
Trade receivables |
| 185.9 |
| 184.3 | ||
Allowance for credit losses |
| (2.3) |
| (2.1) | ||
Trade receivables, net | $ | 183.6 | $ | 182.2 |
In addition to the amounts above, we have unbilled receivables that we do not expect to collect within the next year included in Other non-current assets in our Condensed Consolidated Balance Sheets (Unaudited). Billings for these receivables are based on contractual terms.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in millions):
| June 30, 2021 |
| December 31, 2020 | |||
Prepaid expenses | $ | 40.1 | $ | 39.7 | ||
Contract assets, net |
| 22.0 |
| 20.9 | ||
Income tax receivables | 14.4 | 2.1 | ||||
Other current assets |
| 9.8 |
| 7.7 | ||
Prepaid expenses and other current assets | $ | 86.3 | $ | 70.4 |
7
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Other Non-Current Assets
Other non-current assets consist of the following (in millions):
June 30, 2021 |
| December 31, 2020 | ||||
Contract assets, net | $ | 61.9 | $ | 56.5 | ||
Property records database | 60.5 | 60.5 | ||||
Right-of-use assets(1) |
| 34.8 |
| 41.1 | ||
Deferred compensation plan related assets |
| 24.0 |
| 19.5 | ||
Contract credits |
| 23.2 |
| 5.0 | ||
Prepaid expenses |
| 5.6 |
| 4.9 | ||
Other |
| 3.2 |
| 5.8 | ||
Other non-current assets | $ | 213.2 | $ | 193.3 |
(1) | Includes non-cash additions for right-of-use assets obtained in exchange for lease liabilities of $0.1 million and $4.5 million for the six months ended June 30, 2021 and 2020, respectively. |
Trade Accounts Payable and Other Accrued Liabilities
Trade accounts payable and other accrued liabilities consist of the following (in millions):
June 30, 2021 |
| December 31, 2020 | ||||
Accrued interest | $ | 12.2 | $ | 12.8 | ||
Lease liabilities, current |
| 9.9 |
| 13.5 | ||
Trade accounts payable |
| 9.1 |
| 8.9 | ||
Other taxes payable and accrued |
| 8.6 |
| 10.7 | ||
Accrued client liabilities | 3.3 | 6.4 | ||||
Income taxes payable | | 1.4 | | 13.6 | ||
Other |
| 29.3 |
| 22.2 | ||
Trade accounts payable and accrued liabilities | $ | 73.8 | $ | 88.1 |
Deferred Revenues
During the three months ended June 30, 2021 and 2020, revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $12.1 million and $12.7 million, respectively, and $29.8 million and $28.3 million, respectively, during the six months ended June 30, 2021 and 2020.
Depreciation and Amortization
Depreciation and amortization includes the following (in millions):
Three months ended June 30, |
| Six months ended June 30, | ||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Computer software | $ | 32.7 | $ | 26.4 | $ | 63.3 | $ | 52.2 | ||||
Other intangible assets |
| 39.1 | 13.4 |
| 77.9 |
| 26.4 | |||||
Deferred contract costs |
| 8.6 | 8.7 |
| 16.8 |
| 17.6 | |||||
Property and equipment |
| 10.0 | 10.1 |
| 20.2 |
| 20.1 | |||||
Total | $ | 90.4 | $ | 58.6 | $ | 178.2 | $ | 116.3 |
8
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
(3)Business Acquisitions
2021 Acquisitions
On March 16, 2021, we completed the acquisition of the technology assets and business of NexSpring Financial, LLC (“NexSpring”), which is reported within our Software Solutions segment, and is expected to broaden our ability to serve mortgage brokers.
On May 17, 2021, we completed the acquisition of 100% of the equity interests in eMBS, Inc. (“eMBS”), a leading data and analytics aggregator for residential mortgage-backed securities, which is reported within our Data & Analytics segment, and is expected to solidify and further expand our market leadership in solutions and data for agency-backed securities.
On July 7, 2021, we completed the acquisition of 100% of the equity interests in TOMN Holdings, Inc. and its subsidiaries (“Top of Mind”), the developer of SurefireSM, a leading customer relationship management and marketing automation system for the mortgage industry. SurefireSM will be integrated with our Empower® loan origination system and reported within our Software Solutions segment.
2020 Optimal Blue Acquisition
On September 15, 2020, we completed the acquisition of 100% of the equity interests in Optimal Blue and certain affiliates, a leading provider of secondary market solutions and actionable data services, funded with cash on hand, debt financing and investments from co-investors Cannae and THL. Optimal Blue is reported within our Software Solutions segment because it enhances our robust set of software solutions and includes additional product, pricing and eligibility capabilities.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed (in millions):
9
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
2021 | 2020 | |||||||
Top of Mind(2) | Others(3) | Optimal Blue(4) | ||||||
Cash paid | $ | 258.8 | $ | 48.5 | $ | 1,828.3 | ||
Contingent consideration(1) | — | 4.4 | — | |||||
Less: cash acquired |
| (4.7) |
| (0.2) |
| (29.3) | ||
Total consideration, net | $ | 254.1 | $ | 52.7 | $ | 1,799.0 | ||
Trade receivables | $ | 2.0 | $ | 0.4 | $ | 11.3 | ||
Computer software |
| 28.8 |
| 6.1 |
| 79.7 | ||
Other intangible assets |
| 69.0 |
| 10.2 |
| 610.8 | ||
Goodwill |
| 178.6 |
| 36.1 |
| 1,206.1 | ||
Other current and non-current assets |
| 2.3 |
| 1.1 |
| 13.3 | ||
Total assets acquired |
| 280.7 |
| 53.9 |
| 1,921.2 | ||
Deferred income taxes |
| 18.5 |
| — |
| 101.4 | ||
Current and other non-current liabilities |
| 8.1 |
| 1.2 |
| 20.8 | ||
Total liabilities assumed |
| 26.6 |
| 1.2 |
| 122.2 | ||
Net assets acquired | $ | 254.1 | $ | 52.7 | $ | 1,799.0 |
(1) | The estimated contingent consideration is to be paid in cash based on NexSpring revenues recognized over the three-year period subsequent to the acquisition. Refer to Note 9 – Fair Value Measurement for additional information. |
(2) | On July 7, 2021, we acquired Top of Mind. As such, these amounts are not recorded in our Condensed Consolidated Financial Statements (Unaudited) as of June 30, 2021. The fair value of all acquired assets and assumed liabilities is preliminary and subject to adjustments as we complete our valuation process. |
(3) | Includes the NexSpring and eMBS acquisitions. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Computer software, Other intangible assets, including client relationship assets, and contingent consideration. |
(4) | During the three months ended June 30, 2021, we recorded a measurement period adjustment of $0.1 million for certain pre-acquisition tax liabilities. The fair value of Goodwill and certain assumed liabilities, including estimated liabilities for pre-acquisition tax exposure, is preliminary and subject to adjustments as we complete our valuation process. |
The preliminary amounts assigned to intangible assets by type for our acquisitions of NexSpring and eMBS are summarized in the table below:
|
| Weighted average | |||
Gross | estimated life | ||||
| carrying value |
| (in years) | ||
Computer software | $ | 6.1 |
| 5 | |
Other intangible assets: |
|
|
|
| |
Client relationships |
| 9.4 |
| 10 | |
Trade names |
| 0.2 |
| 3 | |
Non-compete agreements |
| 0.6 |
| 3 | |
Other intangible assets |
| 10.2 |
|
| |
Total gross carrying value | $ | 16.3 |
|
|
(4)Investments in Unconsolidated Affiliates
Dun & Bradstreet Holdings, Inc. (“DNB”) is a global leader in commercial data and analytics that provides various services helping companies improve their operational performance. On July 6, 2020, DNB, previously a wholly-owned subsidiary of Star Parent, L.P., a Delaware limited partnership (“Star Parent”), closed its initial public offering (the “DNB IPO”) and concurrent private placement (the “DNB Private Placement”). In connection with the DNB IPO and DNB Private Placement, our limited partner interests in Star Parent were exchanged for 54.8 million shares of DNB common stock, which represented ownership of 13.0% of DNB.
We hold less than 20% of the outstanding common equity of DNB, but we continue to account for our investment under the equity method because we continue to have significant influence over DNB primarily through a combination of our investment, an agreement with
10
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
certain other DNB investors pursuant to which we agreed to collectively vote together on matters related to the election of DNB directors for a period of three years following the initial public offering of DNB and our shared Chief Executive Officer.
On January 8, 2021, DNB completed its acquisition of Bisnode Business Information Group AB (the “Bisnode acquisition”). In connection with the Bisnode acquisition, DNB issued 6.2 million shares of common stock, which resulted in a decrease in our ownership interest in DNB to 12.8%.
As of June 30, 2021, we have invested an aggregate of $492.6 million in DNB. As of June 30, 2021, DNB’s closing share price was $21.37 and the fair value of our investment in DNB was $1,172.1 million before tax.
Summarized consolidated financial information for DNB (Successor) and Star Parent (Predecessor) is presented below (in millions):
| June 30, 2021 |
| December 31, 2020 | |||
Current assets | $ | 624.2 | $ | 874.4 | ||
Non-current assets |
| 9,236.2 |
| 8,345.9 | ||
Total assets | $ | 9,860.4 | $ | 9,220.3 | ||
Current liabilities, including short-term debt | $ | 972.9 | $ | 828.1 | ||
Non-current liabilities |
| 5,238.9 |
| 4,808.3 | ||
Total liabilities |
| 6,211.8 |
| 5,636.4 | ||
Total equity |
| 3,648.6 |
| 3,583.9 | ||
Total liabilities and shareholders' equity | $ | 9,860.4 | $ | 9,220.3 |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Revenues | $ | 520.9 | $ | 418.7 | $ | 1,025.4 | $ | 814.4 | ||||
Loss before provision for income taxes and equity in net income of affiliates |
| (8.5) |
| (203.0) |
| (42.2) |
| (203.6) | ||||
Net loss |
| (50.8) |
| (174.7) |
| (74.1) |
| (100.4) | ||||
Net loss attributable to DNB (Successor)/Star Parent (Predecessor) |
| (51.7) |
| (208.0) |
| (76.7) |
| (166.1) |
Effective January 1, 2021, DNB eliminated the one-month reporting lag for its subsidiaries outside North America and aligned the year-end for all of its subsidiaries to December 31. DNB applied this change in their accounting policy retrospectively. The effect of this change in accounting policy did not have a material impact to our results of operations or financial condition and was included in our current period accounting for our investment in DNB. The summarized consolidated financial information above was derived from DNB’s most recently available unaudited consolidated financial information and includes the effect of their change in accounting policy.
Equity in (losses) earnings of unconsolidated affiliates, net of tax consists of the following (in millions):
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Equity in losses of unconsolidated affiliates, net of tax | $ | (5.0) | $ | (31.0) | $ | (8.5) | $ | (25.4) | ||||
Non-cash gain related to DNB's issuance of common stock, net of tax |
| — |
| — |
| 9.9 |
| — | ||||
Sale of an equity method investment, net of tax | — | 5.0 | — | 5.0 | ||||||||
Equity in (losses) earnings of unconsolidated affiliates, net of tax | $ | (5.0) | $ | (26.0) | $ | 1.4 | $ | (20.4) |
(5)Earnings Per Share
Diluted net earnings per share includes the effect of unvested restricted stock awards and restricted stock unit awards (“RSUs”). For the three and six months ended June 30, 2021, the outstanding Optimal Blue Holdco profits interests units (“OB PIUs”) were excluded from the
11
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
diluted earnings per share calculations because the effect of their inclusion was antidilutive. The following table sets forth the computation of basic and diluted net earnings per share (in millions, except per share amounts):
| Three months ended June 30, | Six months ended June 30, | ||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Basic: |
|
|
|
|
|
|
| |||||
Net earnings attributable to Black Knight | $ | 39.7 | $ | 39.1 | $ | 93.8 | $ | 89.2 | ||||
Shares used for basic net earnings per share: |
|
|
|
|
|
|
|
| ||||
Weighted average shares of common stock outstanding |
| 155.4 |
| 149.2 |
| 155.5 |
| 148.6 | ||||
Basic net earnings per share | $ | 0.26 | $ | 0.26 | $ | 0.60 | $ | 0.60 | ||||
Diluted: |
|
|
|
|
|
|
|
| ||||
Net earnings attributable to Black Knight | $ | 39.7 | $ | 39.1 | $ | 93.8 | $ | 89.2 | ||||
Shares used for diluted net earnings per share: |
|
|
|
|
|
|
|
| ||||
Weighted average shares of common stock outstanding |
| 155.4 |
| 149.2 |
| 155.5 |
| 148.6 | ||||
Dilutive effect of unvested restricted shares of common stock |
| 0.3 |
| 0.8 |
| 0.3 |
| 0.7 | ||||
Weighted average shares of common stock, diluted |
| 155.7 |
| 150.0 |
| 155.8 |
| 149.3 | ||||
Diluted net earnings per share | $ | 0.25 | $ | 0.26 | $ | 0.60 | $ | 0.60 |
(6)Related Party Transactions
We believe the amounts earned from or charged by us under each of the following arrangements are fair and reasonable. The amounts we earned or that were charged under these arrangements were not negotiated at arm's length and may not represent the terms that we might have obtained from an unrelated third party.
DNB
DNB is considered to be a related party primarily due to the combination of our investment in DNB and our shared Chief Executive Officer. Refer to Note 4 — Investments in Unconsolidated Affiliates for additional details.
During the three months ended June 30, 2021, we entered into a five-year agreement with DNB to provide them with certain products and data over the term of the agreement, as well as professional services, for an aggregate fee of approximately $34 million over the term of the agreement. We also entered into an agreement with DNB for access to certain of their data assets for an aggregate fee of approximately $24 million over the term of the agreement. In addition, we will jointly market certain solutions and data. As of June 30, 2021, we had a related party receivable of $10.5 million due from DNB and deferred revenues of $10.4 million from DNB on our Condensed Consolidated Balance Sheets (Unaudited). This agreement had no effect on our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three and six months ending June 30, 2021.
Trasimene
Trasimene Capital Management, LLC ("Trasimene") was considered a related party because the former Chairman of our Board of Directors (the “Board”) owns a controlling interest in Trasimene. As of June 16, 2021, our former Chairman retired from the Board and Trasimene is no longer considered a related party. During the periods April 1, 2021 through June 16, 2021 and January 1, 2021 through June 16, 2021 we recognized $0.2 million and $0.5 million, respectively, in fees with Trasimene related to acquisitions, which are included in Transition and integration costs in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).
12
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
(7)Goodwill
Goodwill consists of the following (in millions):
| Software |
| Data and |
| |||||
Solutions | Analytics | Total | |||||||
Balance, December 31, 2020 | $ | 3,415.8 | $ | 197.6 | $ | 3,613.4 | |||
NexSpring acquisition (Note 3) |
| 18.2 |
| — |
| 18.2 | |||
eMBS acquisition (Note 3) | — | 17.9 | 17.9 | ||||||
Optimal Blue acquisition (Note 3) | 0.1 | — | 0.1 | ||||||
Balance, June 30, 2021 | $ | 3,434.1 | $ | 215.5 | $ | 3,649.6 |
The increase in Goodwill related to our NexSpring and eMBS acquisitions is deductible for tax purposes. The change in Goodwill related to a measurement period adjustment for Optimal Blue for certain pre-acquisition tax liabilities.
(8)Long-Term Debt
Long-term debt consists of the following (in millions):
| June 30, 2021 |
| December 31, 2020 | |||
Term A Loan | $ | 1,150.0 | $ | 1,148.4 | ||
Revolving Credit Facility |
| 98.0 |
| 47.7 | ||
Senior Notes |
| 1,000.0 |
| 1,000.0 | ||
Other |
| 9.0 |
| 17.6 | ||
Total long-term debt principal |
| 2,257.0 |
| 2,213.7 | ||
Less: current portion of long-term debt |
| (19.0) |
| (73.0) | ||
Long-term debt before debt issuance costs and discount |
| 2,238.0 |
| 2,140.7 | ||
Less: debt issuance costs and discount |
| (21.7) |
| (18.8) | ||
Long-term debt, net of current portion | $ | 2,216.3 | $ | 2,121.9 |
As of June 30, 2021, principal maturities, including payments related to our finance leases, are as follows (in millions):
2021 |
| $ | 1.6 |
2022 | 31.9 | ||
2023 |
| 33.0 | |
2024 |
| 57.5 | |
2025 |
| 57.5 | |
Thereafter |
| 2,075.5 | |
Total | $ | 2,257.0 |
Credit Agreement
On April 30, 2018, our indirect subsidiary BKIS entered into an amended and restated credit and guaranty agreement (the “2018 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto. The 2018 Credit Agreement provided for (i) a $1,250.0 million term loan A facility and (ii) a $750.0 million revolving credit facility.
13
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Debt Refinancing
On March 10, 2021, BKIS entered into a second amended and restated credit and guaranty agreement (the “2021 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto.
The 2021 Credit Agreement provides for (i) a $1,150.0 million term loan A facility (the “Term A Loan”) and (ii) a $1,000.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term A Loan, collectively, the “Facilities”), the proceeds of which were used to repay in full the indebtedness outstanding under the 2018 Credit Agreement and to pay related fees and expenses.
The Facilities bear interest at rates based upon, at the option of BKIS, either (i) the base rate plus a margin of between 25 and 50 basis points depending on the total net leverage ratio of Black Knight Financial Services, LLC (“BKFS”), a Delaware limited liability company and the direct parent company of BKIS, and its restricted subsidiaries on a consolidated basis (the “Consolidated Leverage Ratio”) and (ii) the Eurodollar rate plus a margin of between 125 and 150 basis points depending on the Consolidated Leverage Ratio. In addition, BKIS will pay an unused commitment fee of between 15 and 20 basis points on the undrawn commitments under the Revolving Credit Facility, also depending on the Consolidated Leverage Ratio. The above unused commitment fee and margins are consistent with the 2018 Credit Agreement. The 2021 Credit Agreement also provides us with an option to choose an alternative rate of interest on or before the cessation of the London Interbank Offered Rate (“LIBOR”) at our election.
As of June 30, 2021, the interest rate for the Facilities was based on the Eurodollar rate plus a margin of 150 basis points and was approximately 1.6%. As of June 30, 2021, we had $902.0 million capacity on the Revolving Credit Facility and the unused commitment fee was 20 basis points.
The Facilities are guaranteed by all of BKIS’s wholly-owned domestic restricted subsidiaries and BKFS, and are secured by associated collateral agreements that pledge a lien on the majority of BKIS’s assets and the assets of the guarantors, in each case, subject to customary exceptions.
The Term A Loan is subject to amortization of principal, payable in quarterly installments on the last day of each fiscal quarter equal to the percentage set forth below of the initial aggregate principal amount of the term loans for such fiscal quarter:
Payment Dates |
| Percentage |
|
Commencing on March 31, 2022 through and including December 31, 2023 |
| 0.625 | % |
Commencing on March 31, 2024 through and including December 31, 2025 |
| 1.250 | % |
The remaining principal balance of the Term A Loan and any outstanding loans under the Revolving Credit Facility are due upon maturity on March 10, 2026.
As a result of the refinancing, we recognized $2.5 million of expense during the six months ended June 30, 2021 in Other expense, net on the Condensed Consolidated Statement of Earnings and Comprehensive Earnings (Unaudited).
Senior Notes
On August 26, 2020, BKIS completed the issuance and sale of $1.0 billion aggregate principal amount of 3.625% senior unsecured notes due 2028 (the "Senior Notes"). The Senior Notes have a coupon rate of 3.625% and mature on September 1, 2028. Interest is paid semi-annually in arrears on September 1 and March 1 of each year, and commenced on March 1, 2021. The obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by the same guarantors that guarantee our credit agreement (collectively, the “Guarantors”). The Senior Notes are effectively subordinated to any obligations that are secured, including obligations under our credit agreement, to the extent of the value of the assets securing those obligations. The Senior Notes are structurally subordinated to all liabilities of BKIS’ subsidiaries that do not guarantee the Senior Notes.
14
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Other Debt
On April 1, 2018, we entered into a financing agreement for $32.9 million, with a stated interest rate of 0% and an imputed interest rate of 3.4%, primarily related to certain data processing and maintenance services. On December 31, 2019, we entered into an amendment to the financing agreement for an additional $16.3 million, with a stated interest rate of 0% and an imputed interest rate of 3.3%. Under the terms of the amendment, quarterly payments are due beginning January 2, 2020 through January 2, 2023. As of June 30, 2021 and December 31, 2020, $2.3 million and $9.5 million, respectively, are included in Current portion of debt and $4.0 million and $6.4 million, respectively, are included in Long-term debt, net of current portion in our Condensed Consolidated Balance Sheets (Unaudited).
Finance Leases
On December 31, 2019, we entered into one-year finance lease agreements, with a stated interest rate of 0%, an imputed interest rate of 3.3% and bargain purchase options for certain computer equipment. On March 31, 2021, we entered into one-year finance lease agreements, with a stated interest rate of 0%, an imputed interest rate of 1.6% and bargain purchase options for certain computer equipment. The leased equipment has a useful life of five years and is depreciated on a straight-line basis. The finance lease liabilities of $2.4 million and $1.2 million as of June 30, 2021 and December 31, 2020, respectively, are included in Current portion of debt on our Condensed Consolidated Balance Sheets (Unaudited). For the six months ended June 30, 2021 and 2020, non-cash investing and financing activity was $2.5 million and $8.4 million, respectively, related to the unpaid portion of our finance lease agreements.
Fair Value of Long-Term Debt
The fair values of our Facilities and Senior Notes are based upon established market prices for the securities using Level 2 inputs. The fair value of our Facilities approximates their carrying value at June 30, 2021. The fair value of our Senior Notes at June 30, 2021 was $997.5 million compared to its carrying value of $988.9 million, net of original issue discount and debt issuance costs.
Interest Rate Swaps
We enter into interest rate swap agreements to hedge forecasted monthly interest rate payments on our floating rate debt. As of June 30, 2021, we had the following interest rate swap agreements (collectively, the "Swap Agreements") (in millions):
Effective dates |
| Notional amount |
| Fixed rates |
| |
March 31, 2017 through March 31, 2022 | $ | 200.0 |
| 2.08 | % | |
September 29, 2017 through September 30, 2021 | $ | 200.0 |
| 1.69 | % | |
April 30, 2018 through April 30, 2023 | $ | 250.0 |
| 2.61 | % | |
January 31, 2019 through January 31, 2023 | $ | 300.0 |
| 2.65 | % |
Under the terms of the Swap Agreements, we receive payments based on the 1-month LIBOR (approximately 0.10% as of June 30, 2021).
We entered into the Swap Agreements to convert a portion of the interest rate exposure on our floating rate debt from variable to fixed. We designated these Swap Agreements as cash flow hedges. A portion of the amount included in Accumulated other comprehensive loss is reclassified into Interest expense, net as a yield adjustment as interest is either paid or received on the hedged debt. The fair value of our Swap Agreements is based upon Level 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreements.
It is our policy to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. We believe our interest rate swap counterparties will be able to fulfill their obligations under our agreements, and we believe we will have debt outstanding through the various expiration dates of the swaps such that the occurrence of future cash flow hedges remains probable.
15
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
The estimated fair values of our Swap Agreements are as follows (in millions):
Balance sheet accounts |
| June 30, 2021 |
| December 31, 2020 | ||
Other current liabilities | $ | 3.8 | $ | 2.4 | ||
Other non-current liabilities | $ | 22.9 | $ | 35.2 |
A cumulative loss of $26.7 million ($19.9 million net of tax) and cumulative loss of $37.6 million ($28.1 million net of tax) is reflected in Accumulated other comprehensive loss as of June 30, 2021 and December 31, 2020, respectively. Below is a summary of the effect of derivative instruments on amounts recognized in Other comprehensive (loss) earnings ("OCE") on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) (in millions):
Three months ended June 30, | ||||||||||||
2021 | 2020 | |||||||||||
|
| Amount of loss |
|
| Amount of loss | |||||||
Amount of loss | reclassified from | Amount of loss | reclassified from | |||||||||
recognized | Accumulated OCE | recognized | Accumulated OCE | |||||||||
in OCE | into Net earnings | in OCE | into Net earnings | |||||||||
Swap agreements | $ | (0.2) | $ | 4.0 | $ | (2.6) | $ | 3.2 |
| Six months ended June 30, | |||||||||||
2021 | 2020 | |||||||||||
| Amount of loss |
|
| Amount of loss | ||||||||
Amount of gain | reclassified from | Amount of loss | reclassified from | |||||||||
recognized | Accumulated OCE | recognized | Accumulated OCE | |||||||||
in OCE | into Net earnings | in OCE | into Net earnings | |||||||||
Swap agreements | $ | 0.3 | $ | 7.9 | $ | (24.2) | $ | 4.4 |
Approximately $17.7 million ($13.2 million net of tax) of the balance in Accumulated other comprehensive loss as of June 30, 2021 is expected to be reclassified into Interest expense, net over the next 12 months.
(9)Fair Value Measurements
Fair Value of Financial Assets and Liabilities
Fair value represents the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of financial assets and liabilities are determined using the following fair value hierarchy:
● | Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. |
● | Level 2 inputs to the valuation methodology include: |
o | quoted prices for similar assets or liabilities in active markets; |
o | quoted prices for identical or similar assets or liabilities in inactive markets; |
o | inputs other than quoted prices that are observable for the asset or liability; and |
o | inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
16
BLACK KNIGHT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in millions):
| June 30, 2021 |
| December 31, 2020 | |||||||||||||||||||||
| Carrying |
| Fair value |
| Carrying |
| Fair value | |||||||||||||||||
amount | Level 1 | Level 2 | Level 3 | amount | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents (Note 2) | $ | 88.7 | $ | 88.7 | $ | — | $ | — | $ | 34.7 | $ | 34.7 | $ | — | $ | — | ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate swaps (Note 8) |
| 26.7 |
| — |
| 26.7 |
| — |
| 37.6 |
| — |
| 37.6 |
| — | ||||||||
Contingent consideration (Note 3) |
| 7.7 |
| — |
|