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EX-32.2 - EXHIBIT 32.2 - Black Knight, Inc.bkiexhibit32210-kx2017.htm
EX-32.1 - EXHIBIT 32.1 - Black Knight, Inc.bkiexhibit32110-kx2017.htm
EX-31.2 - EXHIBIT 31.2 - Black Knight, Inc.bkiexhibit31210-kx2017.htm
EX-31.1 - EXHIBIT 31.1 - Black Knight, Inc.bkiexhibit31110-kx2017.htm
EX-23.1 - EXHIBIT 23.1 - Black Knight, Inc.bkiexhibit231-2017.htm
EX-21.1 - EXHIBIT 21.1 - Black Knight, Inc.bkiex211-2017.htm
EX-10.28 - EXHIBIT 10.28 - Black Knight, Inc.bkiexhibit1028-2017.htm
EX-10.21 - EXHIBIT 10.21 - Black Knight, Inc.bkiexhibit1021-2017.htm
EX-10.12 - EXHIBIT 10.12 - Black Knight, Inc.bkiexhibit1012-2017.htm

 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2017
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission File No. 001-37394
 _________________________________
  Black Knight, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
81-5265638
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
601 Riverside Avenue
Jacksonville, Florida 32204
 (Address of principal executive offices, including zip code)
 
(904) 854-5100
 (Registrant’s telephone number,
including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ 
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 þ     No o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes þ    No o 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.  þ 
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):
Large accelerated filer þ
 
     Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller reporting company)  
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ 
The aggregate market value of the shares of Black Knight Financial Services, Inc. Class A common stock held by non-affiliates of the registrant as of June 30, 2017 was $1,075,956,664 based on the closing price of $40.95 as reported by the New York Stock Exchange.
As of February 22, 2018, there were 150,136,389 shares of Black Knight, Inc. common stock outstanding.
The information in Part III hereof for the fiscal year ended December 31, 2017, will be filed within 120 days after the close of the fiscal year that is the subject of this Report.
 
 
 
 
 



BLACK KNIGHT, INC.
FORM 10-K
TABLE OF CONTENTS

 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 



i


Part I
Item 1.
Business
Except as otherwise indicated or unless the context otherwise requires, all references to "Black Knight," the "Company," "we," "us" or "our" (1) prior to the Distribution (as defined in the "Distribution of FNF's Ownership Interest and Related Transactions" section below), are to Black Knight Financial Services, Inc. ("BKFS"), a Delaware corporation, and its subsidiaries and (2) after the Distribution, are to Black Knight, Inc., a Delaware corporation, and its subsidiaries.
Overview
We are a leading provider of software, data and analytics solutions to the mortgage and consumer loan, real estate and capital market verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle, from origination until asset disposition. We believe we differentiate ourselves by the breadth and depth of our comprehensive, integrated solutions and the insight we provide to our clients.
We have market-leading software solutions combined with comprehensive real estate data and extensive analytic capabilities. Our solutions are utilized by U.S. mortgage originators and servicers, as well as other financial institutions, investors and real estate professionals, to support mortgage lending and servicing operations, analyze portfolios and properties, operate more efficiently, meet regulatory compliance requirements and mitigate risk.
The U.S. mortgage market has undergone significant change, and market participants have been subjected to more stringent oversight in recent years. Regulators have increasingly focused on better disclosure, improved risk mitigation and enhanced oversight. Lenders large and small have experienced higher costs in order to comply with this higher level of regulation. Despite these new regulatory requirements, the mortgage industry remains a competitive marketplace with numerous large lenders and smaller institutions competing for new loan originations. In order to comply with the increased regulatory requirements and compete more effectively, market participants have continued to outsource mission-critical functions to third party technology providers that can offer comprehensive and integrated solutions, which are also cost-effective, due to their deep domain expertise and economies of scale.
We believe our comprehensive end-to-end, integrated solutions differentiate us from other software providers and position us particularly well for evolving opportunities. We have served the mortgage and real estate industries for over 50 years and utilize this experience to design and develop solutions that fit our clients' ever-evolving needs. Our proprietary software solutions and data and analytics capabilities reduce manual processes, improve compliance and quality, mitigate risk and deliver significant cost savings to our clients. Our scale allows us to continually and cost-effectively invest in our business in order to meet evolving industry requirements and maintain our position as an industry-standard platform for mortgage market participants.
The table below summarizes active first and second lien mortgages on our mortgage servicing software solution and the related market data, reflecting our leadership in the mortgage servicing software solutions market as of December 31, 2017 and 2016 (in millions):
 
First lien mortgages
 
 
Second lien mortgages
 
Total first and second lien mortgages
 
2017
 
2016
 
 
2017
 
2016
 
2017
 
2016
Active loans
31.6

 
30.9

 
 
2.0

 
1.1

 
33.6

 
32.0

Market size
51.2

(1)
50.9

(1)
 
15.4

(2)
14.8

(2)
66.6

 
65.7

Market share
62
%
 
61
%
 
 
13
%
 
7
%
 
50
%
 
49
%
_______________________________________________________
Note: Percentages above may not recalculate due to rounding.
(1)
According to the December Black Knight Mortgage Monitor Reports as of December 31, 2017 and 2016 for U.S. first lien mortgages.
(2)
According to the November 2017 and February 2017 Equifax National Consumer Credit Trends Reports as of September 30, 2017 and December 31, 2016, respectively, for U.S. second lien mortgages.
Our business is organized into two segments:
Software Solutions – offers software and hosting solutions that support loan servicing, loan origination and settlement services. The Software Solutions segment was formerly known as the Technology segment.
Data and Analytics – offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, prepayment and default models, lead generation, multiple listing service solutions and other data solutions.
We offer our solutions to a wide range of clients across the mortgage and consumer loan, real estate and capital market verticals. The quality and breadth of our solutions contribute to the long-standing nature of our relationships with our clients, the majority of whom enter into long-term contracts across multiple products that are embedded in their mission critical workflow and decision processes, particularly in the Software Solutions segment. Given the contractual nature of our revenues and stickiness of our client

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relationships, our revenues are highly visible and recurring in nature. Due to our integrated suite of solutions and our scale, we are able to drive significant operating leverage, which we believe enables our clients to operate more efficiently while allowing us to generate strong margins and cash flows.
Our History
Our business generally represents a reorganization of the former Technology, Data and Analytics segment of Lender Processing Services, Inc. ("LPS"), a former provider of integrated technology, data and services to the mortgage industry in the United States that Fidelity National Financial, Inc. ("FNF") acquired in January 2014. Our business also includes the businesses of Fidelity National Commerce Velocity, LLC ("Commerce Velocity") and Property Insight, LLC ("Property Insight"), two companies that were contributed to us by FNF. ServiceLink Holdings, LLC ("ServiceLink"), another majority-owned subsidiary of FNF, operates the Transaction Services businesses of the former LPS as well as FNF's legacy ServiceLink businesses. We were a majority-owned subsidiary of FNF prior to the Distribution as described in the "Distribution of FNF's Ownership Interest and Related Transactions" section below.
Acquisition of LPS by FNF and Internal Reorganization
On January 2, 2014, FNF acquired LPS (the "Acquisition"), and as a result, LPS became an indirect, wholly-owned subsidiary of FNF.
Following the Acquisition, on January 3, 2014, a series of transactions were effected (the "Internal Reorganization"), pursuant to which (i) LPS was converted into a limited liability company and renamed Black Knight InfoServ, LLC ("BKIS"); (ii) the former Transaction Services businesses of LPS were transferred by BKIS to Black Knight Holdings, Inc. ("BKHI"), a wholly-owned subsidiary of FNF, and contributed by BKHI to ServiceLink; (iii) Black Knight Financial Services, LLC ("BKFS LLC") acquired all of the membership interests of BKIS; and (iv) all of the outstanding membership interests of Commerce Velocity were contributed by BKHI to BKFS LLC.
As a result of the Internal Reorganization, BKFS LLC owns substantially all of the former Technology, Data and Analytics segment of LPS and Commerce Velocity. BKFS LLC did not acquire the former Transaction Services segment of LPS.
Following the Internal Reorganization, BKFS LLC issued, in the aggregate, 35.0% of the membership interests ("Units") of BKFS LLC, to (i) certain affiliates ("THL Affiliates") of Thomas H. Lee Partners, L.P. ("THL"), and (ii) THL Black Knight I Holding Corp. and THL Investors Black Knight I Holding Corp. (together, the "THL Intermediaries"), each of which is an affiliate of THL, formed for the purpose of holding investments in BKFS LLC. As consideration for the Units of BKFS LLC, THL contributed $350.0 million.
Following the Internal Reorganization and the subsequent issuance of Units to THL, BKFS LLC was majority owned by FNF through its wholly-owned subsidiary, BKHI, and certain affiliates of FNF and BKHI, and minority owned by THL through the THL Affiliates and THL Intermediaries.
Contribution of Property Insight
On June 2, 2014, as part of an additional internal reorganization, two wholly-owned subsidiaries of FNF contributed to BKFS LLC their respective interests in Property Insight, which provides information used by title insurance underwriters, title agents and closing attorneys to source and underwrite title insurance for real property sales and transfers. As a result, BKFS LLC is the sole member of Property Insight. In connection with the Property Insight contribution, BKFS LLC issued an additional 6.4 million Units to certain affiliates of BKHI. As a result of this issuance, THL Affiliates' and THL Intermediaries' combined percentage ownership in BKFS LLC was reduced from 35.0% to 32.9%, and FNF's percentage of beneficial ownership of BKFS LLC increased from 65.0% to 67.1%.
Initial Public Offering
On May 26, 2015, we completed our initial public offering ("IPO") in which we issued and sold 20,700,000 shares of BKFS Class A common stock at a price of $24.50 per share. In connection with our IPO, we effected several reorganization transactions (the "Offering Reorganization"). See Note 1 to the Notes to Consolidated Financial Statements for a more detailed discussion of the IPO.
2016 Acquisitions
On May 16, 2016, we completed our acquisition of eLynx Holdings, Inc. ("eLynx"), a leading lending document and data delivery platform that we now refer to as our eLending business. Our eLending business helps clients in the financial services and real estate industries electronically capture and manage documents and associated data throughout the document lifecycle. We purchased eLynx to augment our origination software business. This acquisition positions us to electronically support the full mortgage origination process.

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On June 22, 2016, we completed our acquisition of Motivity Solutions, Inc. ("Motivity"), which provides customized mortgage business intelligence software solutions. Motivity along with our LoanSphere product suite, including the LoanSphere Data Hub, provides clients with deeper insights into their origination and servicing operations and portfolios.
Recent Developments
Realignment of Property Insight
Effective January 1, 2017, Property Insight realigned its commercial relationship with FNF. In connection with the realignment, Property Insight employees responsible for title plant posting and maintenance were transferred to FNF. Under the new commercial arrangement, we continue to own the title plant technology and retain sales responsibility for third parties, other than FNF. As a result of the realignment, we no longer recognize revenues or expenses related to title plant posting and maintenance, but charge FNF a license fee for use of the technology to access and maintain the title plant data. Had the realignment taken place on January 1, 2016, our 2016 revenues and expenses would have been lower by approximately $30 million with essentially no effect to operating income. This transaction did not result in any gain or loss.
Distribution of FNF's Ownership Interest and Related Transactions
On September 29, 2017, we completed a tax-free plan whereby FNF distributed all 83.3 million shares of BKFS common stock that it owned to FNF Group shareholders through a series of transactions (the "Distribution"). The Distribution was consummated through four newly-formed corporations, New BKH Corp. ("New BKH"), Black Knight, Inc. (formerly known as Black Knight Holdco Corp.), New BKH Merger Sub, Inc. ("Merger Sub One") and BKFS Merger Sub, Inc. ("Merger Sub Two"), as follows:
BKHI, a wholly-owned subsidiary of FNF, contributed all of its 83.3 million shares of BKFS Class B common stock and all of its units of BKFS LLC to New BKH in exchange for 100% of the shares of New BKH common stock;
Following which BKHI converted into a limited liability company and distributed to FNF all of the shares of New BKH common stock held by BKHI;
Immediately thereafter, FNF distributed the shares of New BKH common stock to the holders of FNF Group common stock on a pro-rata basis (the "Spin-off");
Immediately following the Spin-off, Merger Sub One merged with and into New BKH (the "New BKH merger");
In the New BKH merger, each outstanding share of New BKH common stock (other than shares owned by New BKH) was exchanged for one share of Black Knight, Inc. common stock. New BKH shares owned by New BKH immediately prior to the New BKH merger were canceled for no consideration. As a result of the Spin-Off and the New BKH merger, FNF Group shareholders received 0.3066322 shares of Black Knight, Inc. common stock for each share of FNF Group common stock they held;
Immediately following the New BKH merger, Merger Sub Two merged with and into Black Knight Financial Services, Inc. (the "BKFS merger");
In the BKFS merger, each outstanding share of BKFS Class A common stock (other than shares owned by BKFS) was exchanged for one share of Black Knight, Inc. common stock. Shares of BKFS Class A common stock owned by BKFS, otherwise referred to as treasury stock, immediately prior to the BKFS merger were canceled for no consideration; and
Black Knight, Inc. is the public company following the completion of the Distribution.
Shares of Black Knight, Inc. common stock are listed on the New York Stock Exchange ("NYSE") under the trading symbol “BKI”, and began trading on October 2, 2017. Under the organizational documents of Black Knight, Inc., the rights of the holders of shares of Black Knight, Inc. common stock are substantially the same as the rights of former holders of BKFS Class A common stock.
On June 8, 2017, Black Knight, Inc., BKFS and certain affiliates of THL entered into an interest exchange agreement (the "THL Interest Exchange"). Immediately following the completion of the Distribution, affiliates of THL contributed to Black Knight, Inc. all of their BKFS Class B common stock and all of their BKFS LLC Units in exchange for a number of shares of Black Knight, Inc. common stock equal to the number of shares of BKFS Class B common stock contributed. Following the completion of the Distribution and the THL Interest Exchange, the shares of BKFS Class B common stock were canceled.
Our Corporate Structure
Prior to the Distribution, BKFS conducted its business through BKFS LLC and its subsidiaries. We had a sole managing member interest in BKFS LLC, which granted us the exclusive authority to manage, control and operate the business and affairs of BKFS LLC and its subsidiaries, pursuant to the terms of its Second Amended and Restated Limited Liability Company Agreement ("LLC Agreement"). Under the terms of the LLC Agreement, we are authorized to manage the business of BKFS LLC, including

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enter into contracts, manage bank accounts, hire employees and agents, incur and pay debts and expenses, merge or consolidate with other entities and pay taxes. We consolidated BKFS LLC in our consolidated financial statements and reported noncontrolling interests related to the Units in BKFS LLC held by BKHI and certain THL Affiliates. Our shareholders indirectly controlled BKFS LLC through our managing member interest.
FNF, through BKHI, and certain THL Affiliates held Units and a number of shares of BKFS Class B common stock equal to the number of Units held by each such owner.
Prior to the Distribution, our corporate structure, as described above, was commonly referred to as an "Up-C" structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering. Our Up-C structure allowed the owners of BKFS LLC to realize tax benefits associated with ownership interests in an entity that was treated as a partnership, or "passthrough" entity, for income tax purposes. These benefits included limiting entity level corporate taxes. Because Units were exchangeable for cash from BKFS LLC or, at our option, shares of BKFS Class A common stock, the Up-C structure also provided the owners of BKFS LLC potential liquidity that holders of privately held limited liability companies are not typically afforded. The owners of BKFS LLC also had voting rights in us equal to those of holders of BKFS Class A common stock through their ownership of shares of BKFS Class B common stock. BKFS also held Units and received the same benefits as the other holders of Units on account of its ownership in an entity treated as a partnership, or passthrough entity, for income tax purposes. Meanwhile, holders of BKFS Class A common stock had economic and voting rights similar to those of holders of common stock of non-Up-C structured public companies.
Generally, we received a pro-rata share of any distributions made by BKFS LLC to its members, which included us, BKHI and certain THL Affiliates. However, pursuant to the LLC Agreement, BKFS LLC was required to make tax distributions to help each of the holders of the Units pay taxes according to such holder's allocable share of taxable income rather than on a pro-rata basis. Additionally, tax distributions were required to be made based upon an assumed tax rate. Funds used by BKFS LLC to satisfy its tax distribution obligations were not available for reinvestment in our business.
BKFS was a holding company and its sole asset was its interest in BKFS LLC. BKFS, through its sole managing member interest, had 100% of the voting power in BKFS LLC and, through its ownership of Units, had 44.5% of the economic interests in BKFS LLC immediately following the IPO. Investors in BKFS held an indirect interest in BKFS LLC through us.
Subsequent to the Distribution and related transactions, BKFS LLC is an indirect wholly-owned subsidiary of Black Knight, Inc. and there are no noncontrolling interests in BKFS LLC. In addition, the Up-C structure is no longer in place.
Our Markets
The U.S. mortgage market is large, and the loan lifecycle is complex and consists of several stages. The mortgage loan lifecycle includes origination, servicing and default. Mortgages are originated to finance home purchases or refinance existing mortgages. Once a mortgage is originated, it is serviced on a periodic basis by mortgage servicers, which may not be the lenders that originated the mortgage. Furthermore, if a mortgage experiences default, it triggers a set of multifaceted processes with an assortment of potential outcomes depending on a mix of variables.
Underlying the three major components of the mortgage loan lifecycle are the software, data and analytics support behind each process, which has become increasingly critical to industry participants due to the complexity of regulatory requirements. As the industry has grown in complexity, participants have responded by outsourcing to large scale specialty providers, automating manual processes and seeking end-to-end solutions that support the processes required to manage the entire mortgage loan lifecycle.
Overview of the Mortgage Servicing Market
The U.S. mortgage servicing market is comprised of first and second lien mortgage loans. As of December 31, 2017, the first lien mortgage market represents 51.2 million mortgage loans according to the Black Knight Mortgage Monitor Report. As of September 30, 2017, the second lien mortgage market represents 15.4 million mortgage loans according to the November 2017 Equifax National Consumer Credit Trends Report. Even through housing downturns, the mortgage servicing market generally remains stable, as the total number of first lien mortgage loans outstanding tends to stay more constant than mortgage originations. The number of second lien mortgage loans outstanding can vary based on a number of factors including loan-to-value ratios, interest rates and lenders' desire to own such loans.
While delinquent mortgages typically represent a small portion of the overall loan servicing market, the mortgage default process is long and complex and involves multiple parties, a significant exchange of data and documentation and extensive regulatory requirements. Providers in the default process must be able to meet strict regulatory guidelines, which we believe are best met through the use of technology.

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Overview of the Mortgage Origination Market
The U.S. mortgage origination market consists of both purchase and refinance originations. The mortgage origination process is complex and involves multiple parties, significant data exchange and significant regulatory oversight, which requires scale and substantial industry experience. According to the Mortgage Bankers Association Mortgage Finance Forecast as of January 20, 2018, the U.S. mortgage origination market for purchase and refinance originations by year is estimated as follows (in billions):
 
2018
 
2017
 
2016
Mortgage Originations:
 
 
 
 
 
Purchase
$
1,183.0

 
$
1,110.0

 
$
1,052.0

Refinance
426.0

 
600.0

 
999.0

Total
$
1,609.0

 
$
1,710.0

 
$
2,051.0

Recent Trends
The U.S. mortgage market has seen significant change since the financial crisis and is expected to continue to evolve going forward. Key regulatory actions arising from the financial crisis, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") and the establishment of the Consumer Financial Protection Bureau ("CFPB"), imposed new and evolving standards for market participants. These regulatory changes have spurred lenders and servicers to seek software solutions that help them meet their compliance obligations in the face of a changing regulatory environment while remaining efficient and profitable.
Evolving regulation. Most U.S. mortgage market participants have become subject to increased regulatory oversight and regulatory requirements as federal and state governments have enacted various new laws, rules and regulations. One example of such legislation is the Dodd-Frank Act, which contained broad changes for many sectors of the financial services and lending industries and established the CFPB, the federal regulatory agency responsible for regulating consumer financial protection within the United States. It is our experience that mortgage lenders have become more focused on minimizing the risk of non-compliance with these evolving regulations and are looking toward technologies and solutions that help them to comply with the increased regulatory oversight and requirements.
Lenders increasingly focused on core operations. As a result of greater regulatory scrutiny and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe lenders are increasingly shifting from in-house technologies to solutions with third-party providers who can provide better technology and services more efficiently. Lenders require these vendors to provide best-in-class technology and deep domain expertise and to assist them in maintaining regulatory compliance.
Growing role of technology in the U.S. mortgage industry. Banks and other lenders and servicers have become increasingly focused on technology automation and workflow management to operate more efficiently and meet their regulatory guidelines. We believe vendors must be able to support the complexity of the market, display extensive industry knowledge and possess the financial resources to make the necessary investments in technology to support lenders.
Increased demand for enhanced transparency and analytic insight. As U.S. mortgage market participants work to minimize the risk in lending, servicing and capital markets, they rely on the integration of data and analytics with technologies that enhance the decision-making process. These industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals.
Our Solutions
Our solutions provide clients with a comprehensive, integrated software and workflow management solution set that is supported by what we believe is industry-leading data and analytics to enhance capabilities and drive efficiencies while assisting our clients to maintain regulatory compliance.
Software Solutions
Our Software Solutions segment offers leading software and hosting solutions that facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. These solutions primarily consist of mortgage origination and servicing, processing and workflow management software applications coupled with related support and services.
Our clients in this segment are primarily mortgage lenders and servicers. We believe they use our software and services to reduce their operating costs, improve their ability to provide superior customer service and enhance the quality and consistency of various aspects of their mortgage operations. We work with our clients to enhance and integrate our software and services in order to assist them in gaining the greatest value from the solutions we provide.

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The primary applications and services within our Software Solutions segment are as follows:
Servicing Software. Our mortgage servicing platform LoanSphere MSP, is a software as a service application that automates loan servicing, including loan setup and ongoing processing, customer service, accounting and reporting to the secondary mortgage market and investor reporting. MSP serves as a core application and database of record for first and second lien mortgages.
When a bank uses MSP to process its mortgage portfolio, we provide a hosted software solution and system support personnel whose role is to ensure our system remains up and running 24 hours a day, seven days a week, to monitor our programs and interfaces effectively, to make system and application changes as necessary and to assist our clients with their responsibilities to be compliant with applicable laws and regulations.
We have also developed web-based workflow information systems, which we refer to as LoanSphere Bankruptcy and LoanSphere Foreclosure. These applications can be used for managing and automating a wide range of different workflow processes involving non-performing loans. In addition, we offer LoanSphere Invoicing, which can be used to organize images of paper documents within a particular file, to capture information from imaged documents, to manage invoices and to provide multiple users access to key data needed for various types of monitoring and process management.
Origination Software. We offer two solutions that automate and facilitate the origination of mortgage loans in the United States: LoanSphere Empower, which supports retail and wholesale loan originations, and LoanSphere LendingSpace, which supports correspondent loan originations, which are originations that are funded by one lender, who sells the loan to another lender who services the loan or sells it on the secondary market. Our loan origination software solutions are enhanced to assist with the changing regulatory requirements and are used to improve loan quality and store documents and images.
We also offer the LoanSphere Exchange and the Insight suite of solutions. The Exchange is a platform that provides a fully interconnected network of originators, agents, settlement services providers and investors in the United States. This secure and integrated one-to-many platform allows lenders and their service providers to connect and do business electronically. Our Insight suite primarily consists of LoanSphere Closing Insight and LoanSphere Quality Insight. Closing Insight and Quality Insight are solutions integrated with the Exchange and are designed to help lenders meet loan quality and disclosure requirements established by government-sponsored enterprises ("GSEs"), the CFPB and the Federal Housing Finance Agency.
Our eLending solutions connect the various parties and systems associated with lending transactions enabling lenders, partners and consumers to exchange data quickly and efficiently. Our eLending platform hosts a range of on-demand services that provide electronic document delivery, signature, closings and post-close services accessible to lenders of all sizes.
We build all of our software platforms to be scalable, secure, flexible, standards-based and web connected for easy use by our clients. Further, we have a history of being able to bring solutions to market quickly due to investments that we have made in integrating our technology and development processes.
Data and Analytics Solutions
Our Data and Analytics segment supports and enhances our software solutions and is designed to help lenders and servicers make more informed decisions, improve performance, identify and predict risk and generate more qualified leads. We believe, based on our knowledge of the industry and competitors, that we have aggregated one of the largest residential real estate data sets in the United States that is derived from both proprietary and public data sources. Utilizing this data, subject to any applicable use restrictions, and our deep history and understanding of the mortgage market, we have created detailed real estate data solutions that assist in portfolio management, valuations, property records, lead generation and improved risk analysis for all aspects of origination, servicing, default and capital markets/investing. In addition, we deliver data, analytics and software solutions to customers in the real estate, title insurance, multiple listing service ("MLS") and other verticals that rely on property data-centric solutions to make informed decisions and run their businesses.
Our primary data and analytics services are as follows:
Property, Mortgage Performance Data and MLS. We make our real estate database available to our clients in a standard, normalized format. We provide a rich and diverse data set for title production activities. We also provide tax status data on properties and offer a number of value-added analytic services designed to enable our clients to utilize our data to assess and mitigate risk, determine property values, track market performance and generate leads. We also provide an MLS system to large MLS groups in the U.S. and Canada.
Mortgage and Real Estate Analytics. We offer a broad range of property valuation services that allow our clients to analyze the value of underlying properties. These include, among others, automated valuation models, collateral risk scores, appraisal review services and valuation reconciliation services. To deliver these services, we utilize proprietary

6


algorithms, detailed real estate statistical analysis and modified physical property inspections. These offerings are designed to reduce risk in origination, servicing and default transactions as well as aid investors in analysis of property and real estate assets. These offerings can be tailored to meet client needs and any regulatory requirements.
Enterprise Business Intelligence. We offer technological solutions that help mortgage lenders and servicers better leverage their extensive data assets by collecting, linking and storing loan data from their applications and from industry sources in a central location and delivering visualization and actionable insights into the data to support proactive decision-making at all levels of the enterprise. In addition, we provide near real-time access to information to provide real-time analytics, enabling proactive management of operations through key performance indicators, scorecards, dashboards and on-demand dynamic reporting.
Our Competitive Strengths
We believe our competitive strengths include the following:
Market leadership with comprehensive and integrated solutions. We are a leading provider of comprehensive and integrated solutions. We believe our leadership position is, in part, the result of our unique expertise and insight developed from over 50 years serving the needs of clients in the mortgage industry. We have used this insight to develop an integrated and comprehensive suite of proprietary software, data and analytics solutions to automate many of the mission-critical business processes across the entire homeownership lifecycle. These integrated solutions are designed to reduce manual processes, assist in improving organizational compliance and mitigating risk, and to ultimately deliver significant cost savings to our clients.
Broad and deep client relationships with significant recurring revenues. We have long-standing, sticky relationships with our largest clients. We frequently enter into long-term contracts with our software solutions clients that contain volume minimums and provide for annual increases. Our products are typically embedded within our clients' mission-critical workflow and decision-making processes across various parts of their organizations.
Extensive data assets and analytics capabilities. We develop and maintain large, accurate and comprehensive data sets on the mortgage and housing industry that we believe are competitively differentiated. Our unique data sets provide a combination of public and proprietary data in real-time and each of our data records features a large number of attributes. Our data scientists utilize our data sets, subject to any applicable use restrictions, and comprehensive analytical capabilities to create highly customized reports, including models of customer behavior for originators and servicers, portfolio analytics for capital markets and government agencies and proprietary market insights for real estate agencies. Our data and analytics capabilities are also embedded into our software solutions and workflow products, providing our clients with integrated and comprehensive solutions.
Scalable and cost-effective operating model. We believe we have a highly attractive and scalable operating model derived from our market leadership, hosted software solutions and the large number of clients we serve. Our scalable operating model provides us with significant benefits. Our scale and operating leverage allows us to add incremental clients to our existing platforms with limited incremental cost. As a result, our operating model drives attractive margins and generates significant cash flow. Also, by leveraging our scale and leading market position, we are able to make cost-effective investments in our software solutions to assist with the evolving regulatory and compliance requirements, further increasing our value proposition to clients.
World class management team with depth of experience and track record of success. Our management team has an average of over 20 years of experience in the banking technology and mortgage processing industries and a proven track record of strong execution capabilities. Following the Acquisition, we have significantly improved our operations and enhanced our go-to-market strategy, further integrated our software solutions, expanded our data and analytics capabilities and introduced several new innovative products. We executed all of these projects while delivering attractive revenues growth and strong profitability.
Our Strategy
Our comprehensive and integrated software solutions, robust data and analytic capabilities, differentiated business model, broad and deep client relationships and other competitive strengths enable us to pursue multiple growth opportunities. We intend to continue to expand our business and grow through the following key strategies:
Further penetration of our solutions with existing clients. We believe our established client base presents a substantial opportunity for growth. We seek to capitalize on the trend of standardization and increased adoption of leading third party solutions and increase the number of solutions provided to our existing client base. We intend to broaden and deepen our client relationships by cross-selling our suite of end-to-end software solutions, as well as our robust data and analytics. By helping our clients understand the full extent of our comprehensive solutions and the value of leveraging the multiple solutions we offer, we believe we can expand our existing relationships by allowing our clients to focus on their core businesses and their customers.

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Win new clients in existing markets. We intend to attract new clients by leveraging the value proposition provided by our software and comprehensive solutions offering. In particular, we believe there is a significant opportunity to penetrate the mid-tier mortgage originators and servicers market. We believe these institutions can benefit from our proven solutions suite in order to address complex regulatory requirements and compete more effectively in the evolving mortgage market. We intend to continue to pursue this channel and benefit from the low incremental cost of adding new customers to our scaled technology infrastructure.
Continue to innovate and introduce new solutions. Our long-term vision is to be the industry-leading provider for participants of the mortgage and consumer loan, real estate and capital markets verticals for their platform, data and analytic needs. We intend to enhance what we believe is a leadership position by continuing to innovate our solutions and refine the insight we provide to our clients. We have a strong track record of introducing and developing new solutions that span the homeownership lifecycle, are tailored to specific industry trends and enhance our clients' core operating functions. By working in partnership with key clients, we have been able to develop and market new and advanced solutions to our client base that meet the evolving demands of the mortgage and consumer loan, real estate and capital market verticals. In addition, we will continue to develop and leverage insights from our large public and proprietary data assets to further improve our customer value proposition.
Selectively pursue strategic acquisitions. The core focus of our strategy is to grow organically. However, we may selectively evaluate strategic acquisition opportunities that would allow us to expand our footprint, broaden our client base and deepen our product and service offerings. We believe that there are meaningful synergies that result from acquiring small companies that provide best-of-breed single point solutions. Integrating and cross-selling these point solutions into our broader client base and integrating acquisitions into our efficient operating environment would potentially result in revenues and cost synergies.
Our Clients
We have numerous clients in each category of service that we offer. A significant focus of our marketing efforts is on the top U.S. mortgage originators and servicers; although, we also provide our solutions to a number of other financial institutions, investors, attorneys, trustees and real estate professionals.
The U.S. mortgage industry is concentrated among the top 25 mortgage institutions and our most significant and long-term relationships tend to follow the industry landscape. We typically provide an extensive number of solutions to each client. Because of the depth of these relationships, we derive a significant portion of our aggregate revenues from our largest clients.
During the year ended December 31, 2017, Wells Fargo, N.A. accounted for approximately 12% of our consolidated revenues, approximately 14% of our Software Solutions segment revenues and approximately 1% of our Data and Analytics segment revenues.
During the year ended December 31, 2017, our five largest clients accounted for approximately 35% of our consolidated revenues, approximately 38% of our Software Solutions segment revenues and approximately 17% of our Data and Analytics segment revenues. However, the revenues in each case are spread across a range of services and are subject to multiple separate contracts. Although the diversity of the services we provide to each of these clients reduces the risk that we would lose all of the revenues associated with any of these clients, a significant deterioration in our relationships with or the loss of any one or more of these clients could have a significant effect on our results of operations. See "Risk Factors-We rely on our top clients for a significant portion of our revenues and profits, which makes us susceptible to the same macro-economic and regulatory factors that affect our clients."
Sales and Marketing
Our sales and marketing efforts are focused on both generating new clients as well as cross-selling our broad service offerings to existing clients.
We have teams of experienced sales personnel with subject matter expertise in particular services and in the needs of particular types of clients. A significant portion of our potential clients in each of our business lines is targeted via direct and/or indirect field sales, as well as inbound and outbound telemarketing efforts. Marketing activities include direct marketing, print and electronic advertising, media relations, web-based activities, thought leadership, client meetings and conferences, tradeshow and convention activities and other targeted initiatives.
Given the broad range of solutions we offer and the concentration and scale of many of our existing clients, we have the opportunity to expand our sales to our existing client base through cross-selling efforts. We have established a core team of account managers that cross-sell the full range of our services to existing and potential clients at the top U.S. mortgage originators and servicers, as well as a number of other financial institutions, investors and real estate professionals. The individuals who participate in this effort spend a significant amount of their time on sales and marketing efforts.

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We engage in strategic account reviews, during which our executives share their knowledge of clients and the market in order to determine the best sales approach on a client-by-client basis. As a result, we have created an effective cross-selling culture within our organization.
Research and Development
Our research and development activities relate primarily to the design, development and enhancement of our software applications. We expect to continue our practice of investing an appropriate level of resources to maintain, enhance and extend the functionality of our proprietary systems and existing software applications, to develop new and innovative software applications and systems in response to the needs of our clients and to enhance the capabilities surrounding our infrastructure. We work with our clients to determine the appropriate timing and approach to introducing technology or infrastructure changes to our applications and services.
Patents, Trademarks and Other Intellectual Property
We rely on a combination of contractual restrictions, internal security practices and copyright and trade secret laws to establish and protect our software, technology, data and expertise. Further, we have developed a number of brands that have accumulated goodwill in the marketplace, and we rely on the above to protect our rights in that area. We intend to continue our policy of taking all measures we deem necessary to protect our copyright, trade secret and trademark rights.
Competition
A number of the businesses in which we engage are highly competitive. Competitive factors in processing businesses include the quality of the technology-based application or service, application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services and pricing. We believe that our integrated software solutions and economies of scale in the mortgage processing business provide us with a competitive advantage in each of these categories. Based on our knowledge of the industry and competitors, we also believe that no single competitor offers the depth and breadth of solutions we are able to offer.
Software Solutions. With respect to our Software Solutions segment, we compete with our customers' internal technology departments and other providers of similar systems, such as Ellie Mae, Inc., Fiserv, Inc., Fidelity National Information Services, Inc., or FIS, and Mortgage Cadence. Competitive factors include the quality of the technology-based application or service, application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services, and pricing. We believe that our integrated software solutions and economies of scale in the mortgage processing business provide us with a competitive advantage in each of these categories.
Data and Analytics. In our Data and Analytics segment, we primarily compete with CoreLogic, Inc., First American Financial Corporation, in-house capabilities and certain niche providers. We compete based on the breadth and depth of our data, the exclusive nature of some of our key data sets and the capabilities to create highly customized reports. We believe that the quality of the data we offer is distinguished by the broad range of our data sources, including non-public sources, the volume of records we maintain, our ability to integrate our data and analytics with our software solutions and the ability to leverage our market leading position in the mortgage origination and servicing industries.
Government Regulation
Various aspects of our businesses are subject to federal and state regulations. Our failure to comply with any applicable laws and regulations could result in restrictions on our ability to provide certain services, as well as the possible imposition of civil fines and criminal penalties.
As a provider of electronic data processing to financial institutions, such as banks and credit unions, we are subject to regulatory oversight and examination by the Federal Financial Institutions Examination Council ("FFIEC"), an interagency body of the Federal Reserve Board ("FRB"), the CFPB, the Office of the Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC") and various other federal and state regulatory authorities. We also may be subject to possible review by state agencies that regulate banks in each state in which we conduct our electronic processing activities.
Our financial institution clients are required to comply with various privacy regulations imposed under state and federal law, including the Gramm-Leach-Bliley Act. These regulations place restrictions on the use of non-public personal information. All financial institutions must disclose detailed privacy policies to their customers and offer them the opportunity to direct the financial institution not to share information with third parties. The regulations, however, permit financial institutions to share information with non-affiliated parties who perform services for the financial institutions. As a provider of services to financial institutions, we are required to comply with the same privacy regulations and are generally bound by the same limitations on disclosure of the information received from our clients as those that apply to the financial institutions themselves.
The financial crisis resulted in increased scrutiny of all parties involved in the mortgage industry by governmental authorities with the most recent focus being on those involved in the foreclosure process. This scrutiny has included federal and state

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governmental review of all aspects of the mortgage lending business, including an increased legislative and regulatory focus on consumer protection practices. The Dodd-Frank Act is one example of such legislation. It is difficult to predict the final form that regulations or other rule-makings to implement the various requirements of the Dodd-Frank Act may take, what additional legislative or regulatory changes may be approved in the future, or whether those changes may require us to change our business practices, incur increased costs of compliance or adversely affect our results of operations.
Information Security
We are highly dependent on information technology networks and systems to securely process, transmit and store electronic information. Attacks on information technology systems continue to grow in frequency, complexity and sophistication. Such attacks have become a point of focus for individuals, businesses and governmental entities. These attacks can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including non-public personal information, consumer data and proprietary business information.
We remain focused on making strategic investments in information security to protect our clients and our information systems. This includes both capital expenditures and operating expenses on hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our clients.
Employees
As of December 31, 2017, we had approximately 4,430 employees and approximately 210 independent contractors. None of our workforce currently is unionized. We have not experienced any work stoppages, and we consider our relations with employees to be good.
Financial Information by Segment
In addition to our two reporting segments, we have a corporate organization that consists primarily of general and administrative expenses that are not included in the other segments. For financial information by reporting segment, see Note 17 to the Notes to Consolidated Financial Statements.
Statement Regarding Forward-Looking Information
 The statements contained in this Form 10-K or in our other documents or in oral presentations or other statements made by our management that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, hopes, intentions or strategies regarding the future. These statements relate to, among other things, future financial and operating results of Black Knight. In many cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," or the negative of these terms and other comparable terminology. Actual results could differ materially from those anticipated in these statements as a result of a number of factors, including, but not limited to the following:
security breaches against our information systems;
changes to our relationships with our top clients, whom we rely on for a significant portion of our revenues and profit;
limitation of our growth due to the time and expense associated with switching from competitors' software and services;
providing credits or refunds for prepaid amounts or contract terminations in connection with our service level commitments;
our ability to offer high-quality technical support services;
our ability to comply with or changes in laws, rules and regulations that affect our and our customers' businesses;
consolidation in our end client market;
regulatory developments with respect to use of consumer data and public records;
efforts by the government to reform or address the mortgage market and current economic environment;
our clients' relationships with government-sponsored enterprises;
our ability to adapt our solutions to technological changes or evolving industry standards;
our ability to compete effectively;
increase in the availability of free or relatively inexpensive information;
our ability to protect our proprietary software and information rights;
infringement on the proprietary rights of others by our applications or services;
our ability to successfully consummate and integrate acquisitions;
our reliance on third parties;
our dependence on our ability to access data from external sources;
our international operations and third-party service providers;
our ability to develop widespread brand awareness cost-effectively;
system failures, damage or interruption with respect to our software solutions;
delays or difficulty in developing or implementing new, enhanced or existing mortgage processing or software solutions;

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change in the strength of the economy and housing market generally;
our existing indebtedness and any additional significant debt we incur;
the adequacy of our risk management policies and procedures;
our ability to achieve our growth strategies;
litigation, investigations or other actions against us;
the market price of our common stock may be volatile;
future sales of our common stock in the public market;
industry or securities analysts could publish unfavorable or inaccurate information about us;
our charter and bylaws and provisions of Delaware law may discourage or prevent strategic transactions;
our intention not to pay dividends on our common stock for the foreseeable future;
if the Distribution is treated as a taxable transaction due to our acts or failure to act, we may have a significant indemnity obligation to FNF, which is not limited in amount or subject to any cap;
the possibility that we will forgo certain transactions in order to avoid the risk of incurring significant tax-related liabilities; and
restrictions on our ability to pursue potential business opportunities under a non-competition agreement with FNF that we entered in connection with the Distribution.

See "Risk Factors" for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Annual Report on Form 10-K. Any forward-looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We are not under any obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.
Additional Information
Our website address is www.blackknightinc.com. We make available free of charge on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). However, the information found on our website is not part of this or any other report.
Item 1A.
Risk Factors
In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below and others described elsewhere in this Annual Report on Form 10-K. Any of the risks described herein could result in a significant or material adverse effect on our results of operations or financial condition.
If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, or if we are unable to provide adequate security in the electronic transmission of sensitive data, it could have a material adverse effect on our business, financial condition and results of operations.
We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store electronic information. Security breaches of this infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including non-public personal information, consumer data and proprietary business information. Cyber-based attacks against financial institutions to extort payment in return for the release of sensitive information are increasing. Unauthorized access, including through use of fraudulent schemes such as "phishing" schemes, could jeopardize the security of information stored in our systems. In addition, malware or viruses could jeopardize the security of information stored or used in a user's computer. If we are unable to prevent such security or privacy breaches, our operations could be disrupted, or we may suffer loss of reputation, financial loss, lawsuits and regulatory imposed restrictions and penalties because of lost or misappropriated information, including sensitive consumer data, which could have a material adverse effect on our business, financial condition and results of operations. Likewise, our clients are increasingly imposing more stringent contractual obligations on us relating to our information security protections. If we are unable to maintain protections and processes at a level commensurate with that required by our large clients, it could negatively affect our relationships with those clients, increase our operating or litigation costs or subject us to liability under those contractual obligations, which could have a material adverse effect on our business, financial condition and results of operations.

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We rely on our top clients for a significant portion of our revenues and profits, which makes us susceptible to the same macro-economic and regulatory factors that affect our clients. If these clients are negatively affected by current economic or regulatory conditions or otherwise experience financial hardship or stress, or if the terms of our relationships with these clients change, it could have a material adverse effect on our business, financial condition and results of operations.
Our clients are in a consolidated industry and, as a result, a small number of our clients have accounted for a significant portion of our revenues. We expect that a limited number of our clients will continue to represent a significant portion of our revenues for the foreseeable future. The significant portion or our revenues that a limited number of our clients currently represent may increase in the future. During the year ended December 31, 2017, our largest client, Wells Fargo, N.A., or Wells Fargo, accounted for approximately 12% of our consolidated revenues and approximately 14% and 1% of the revenues from our Software Solutions and Data and Analytics segments, respectively. During the year ended December 31, 2017, our five largest clients accounted for approximately 35% of our consolidated revenues, approximately 38% of our Software Solutions segment revenues and approximately 17% of our Data and Analytics segment revenues.
Our clients face continued pressure in the current economic and regulatory climate. Many of our relationships with these clients are long-standing and are important to our business and results of operations, but there is no guarantee that we will be able to retain or renew existing agreements or maintain our relationships on acceptable terms or at all. Additionally, we rely on cross-selling our products and services to our existing clients as a source of growth. The deterioration in or termination of any of these relationships could significantly reduce our revenues and could have a material adverse effect on our business, financial condition and results of operations. As a result, we may be disproportionately affected by declining revenues from, or loss of, a significant client. In addition, by virtue of their significant relationships with us, these clients may be able to exert pressure on us with respect to the pricing of our services.
The time and expense associated with switching from our competitors' software and services to ours may limit our growth.
The costs for a mortgage lender or servicer to switch providers of software, data and analytics solutions and services can be significant and the process can take 12 to 18 months to complete, or longer. As a result, potential clients may decide that it is not worth the time and expense to begin using our solutions and services, even if we offer competitive and economic advantages. If we are unable to convince these potential clients to switch to our software and services, our ability to increase market share will be limited, which could have a material adverse effect on our business, financial condition and results of operations.
We typically provide service level commitments under our client contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our business, financial condition and results of operations.
Our client agreements typically provide service level commitments measured on a daily and monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications, we may be contractually obligated to provide these clients with service credits or refunds or we could face contract terminations. If we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our clients or if we experience any extended service outages, it could have a material adverse effect on our business, financial condition and results of operations.
Any failure to offer high-quality technical support services may adversely affect our relationships with our clients and could have a material adverse effect on our business, financial condition and results of operations.
Once our applications and software are deployed, our clients depend on our support organization to resolve technical issues relating thereto. We may be unable to respond adequately to accommodate short-term increases in client demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased client demand for these services, without corresponding revenues, could increase costs and adversely affect our results of operations. In addition, our sales process is highly dependent on our applications and business reputation and on positive recommendations from our existing clients. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation and our ability to sell our applications to existing and prospective clients, any of which could have a material adverse effect on our business, financial condition and results of operations.

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Our clients and we are subject to various governmental regulations, and a failure to comply with governmental regulations or changes in these regulations, including changes that may result from changes in the political landscape, could result in penalties, restrict or limit our or our clients' operations or make it more burdensome to conduct such operations, any of which could have a material adverse effect on our business, financial condition and results of operations.
Many of our clients' and our businesses are subject to various federal, state, local and foreign laws and regulations. Our failure to comply with applicable laws and regulations could restrict our ability to provide certain services or result in imposition of civil fines and criminal penalties, substantial regulatory and compliance costs, litigation expense, adverse publicity and loss of revenues.
As a provider of electronic data processing to financial institutions, such as banks and credit unions, we are subject to regulatory oversight and examination by the FFIEC, an interagency body of the FRB, the CFPB, the OCC, the FDIC and various other federal and state regulatory authorities. We also may be subject to possible review by state agencies that regulate banks in each state in which we conduct our electronic processing activities.
In addition, our businesses are subject to an increased degree of compliance oversight by regulators and by our clients. Specifically, the CFPB has authority to write rules affecting the business of, supervise, conduct examinations of, and enforce compliance as to federal consumer financial protection laws and regulations with respect to certain "non-depository covered persons" determined by the CFPB to be "larger participants" that offer consumer financial products and services. The CFPB and the prudential financial institution regulators such as the OCC also have the authority to examine us in our role as a service provider to large financial institutions. In addition, we believe some of our largest bank clients' regulators are requiring the banks to exercise greater oversight and perform more rigorous audits of their key vendors such as us.
The Real Estate Settlement Procedures Act ("RESPA") and related regulations generally prohibit the payment or receipt of fees or any other item of value for the referral of real estate-related settlement services. RESPA also prohibits fee shares or splits or unearned fees in connection with the provision of residential real estate settlement services, such as mortgage brokerage and real estate brokerage. Notwithstanding these prohibitions, RESPA permits payments for goods furnished or for services actually performed, so long as those payments bear a reasonable relationship to the market value of the goods or services provided. RESPA and related regulations may to some extent restrict our real estate-related businesses from entering into certain preferred alliance arrangements. The CFPB is responsible for enforcing RESPA.
Changes to laws and regulations and regulatory oversight of our clients and us, including those that may result from changes in the political landscape, may cause us to increase our prices in certain situations or decrease our prices in other situations, may restrict our ability to implement price increases or otherwise limit the manner in which we conduct our business. We may also incur additional expense in keeping our software solutions services up to date as laws and regulations change, and we may not be able to pass those additional costs on to our clients. In addition, in response to increased regulatory oversight, participants in the mortgage lending industry may develop policies pursuant to which they limit the extent to which they can rely on any one vendor or service provider. Conversely, in an environment with less stringent regulatory oversight, prospective clients may choose to retain their in-house platforms, or current service providers, or seek alternative service providers who provide services that are less compliance and quality oriented at a lower price point. If we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative effect on our clients, we may experience client losses or increased operating costs, which could have a material adverse effect on our business, financial condition and results of operations.
There may be consolidation in our end client market, which could reduce the use of our services by our clients and could have a material adverse effect on our business, financial condition and results of operations.
Consolidations among existing or potential clients could reduce the number of our clients and potential clients. If our clients merge with, are acquired by or sell their servicing portfolios to other entities that are not our clients, or that use fewer of our services, they may discontinue or reduce their use of our services. In addition, if potential clients merge, our ability to increase our client base may be adversely affected and the ability of our customers to exert pressure on our pricing may increase. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.
Regulatory developments with respect to use of consumer data and public records could have a material adverse effect on our business, financial condition and results of operations.
Because our databases include certain public and non-public personal information concerning consumers, we are subject to government regulation and potential adverse publicity concerning our use of consumer data. We acquire, store, use and provide many types of consumer data and related services that are subject to regulation under the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Driver's Privacy Protection Act and, to a lesser extent, various other federal, state and local laws and regulations. These laws and regulations are designed to protect the privacy of consumers and to prevent security breaches, other unauthorized access and misuse of personal information in the marketplace. Our failure to comply with these laws, or any future laws or regulations of a similar nature, could result in substantial regulatory penalties, litigation expense and loss of revenues, which could have a material adverse effect on our business, financial condition and results of operations.

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In addition, some of our data suppliers face similar regulatory requirements and, consequently, they may cease to be able to provide data to us or may substantially increase the fees they charge us for this data, which may make it financially burdensome or impossible for us to acquire data that is necessary to offer our products and services. Further, many consumer advocates, privacy advocates and government regulators believe that existing laws and regulations do not adequately protect privacy or ensure the accuracy of consumer-related data. As a result, they are seeking further restrictions on the dissemination or commercial use of personal information to the public and private sectors as well as contemplating requirements relative to data accuracy and the ability of consumers to opt to have their personal data removed from databases such as ours. Any future laws, regulations or other restrictions limiting the dissemination or use of personal information may reduce the quality and availability of our solutions and services, which could have a material adverse effect on our business, financial condition and results of operations.
Participants in the mortgage industry are subject to efforts by the government to reform the mortgage industry or address the mortgage market and current economic environment could have a material adverse effect on our business, financial condition and results of operations.
The mortgage industry continues to be subject to review by governmental authorities, judges and the news media, among others. Inquiries may include federal and state governmental review of all aspects of the mortgage lending business, and several actions to aid the housing market and the economy in general, and to implement more rigorous standards around mortgage servicing.
Additional state and federal government actions directed at housing and the mortgage industry may occur and could have a material adverse effect on our business, financial condition and results of operations.
Our clients' relationships with GSEs are subject to change, which could have a material adverse effect on our business, financial condition and results of operations.
Our clients have significant relationships with Fannie Mae and Freddie Mac, which are GSEs, tasked with working with financial institutions to provide liquidity to the mortgage market. They do this by purchasing loans from the lenders either for cash or in exchange for mortgage-backed securities that are backed by those loans and that, for a fee, carries the GSEs guarantee of timely payment of interest and principal to investors of those mortgage-backed securities. Because our clients service the loans owned by GSEs, we provide solutions and services for many of those loans. As a result of these relationships, GSEs have been able to implement changes to our pricing structure on certain products and services we provide. GSEs or other governmental agencies may be able to exert similar pressure on the pricing of our solutions and services in the future, which could have a material adverse effect on our business, financial condition and results of operations.
If we fail to adapt our solutions to technological changes or evolving industry standards, or if our ongoing efforts to upgrade our technology are not successful, we could lose clients and have difficulty attracting new clients for our solutions, which could have a material adverse effect on our business, financial condition and results of operations.
The markets for our solutions are characterized by constant technological changes, frequent introductions of new products and services and evolving industry standards and regulations. Our future success will be significantly affected by our ability to successfully enhance our current solutions, and develop and introduce new solutions and services that address the increasingly sophisticated needs of our clients and their customers. These initiatives carry the risks associated with any new product or service development effort, including cost overruns, delays in delivery and performance issues. There can be no assurance that we will be successful in developing, marketing and selling new solutions and services that meet these changing demands, that we will not experience difficulties that could delay or prevent the successful development, introduction, and marketing of these solutions and services or that our new solutions and services and their enhancements will adequately meet the demands of the marketplace and achieve market acceptance. If our efforts are unsuccessful, it could have a material adverse effect on our business, financial condition and results of operations.
We operate in a competitive business environment and, if we are unable to compete effectively, it could have a material adverse effect on our business, financial condition and results of operations.
The markets for our solutions are intensely competitive. Our competitors vary in size and in the scope and breadth of the services they offer. Some of our competitors have substantial resources. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not have a material adverse effect on our business, financial condition and results of operations.
Further, because many of our larger potential clients have historically developed their key processing applications in-house and therefore view their system requirements from a make-versus-buy perspective, we often compete against our potential clients' in-house capacities. As a result, gaining new clients in our mortgage processing business can be difficult. For banks and other potential clients, switching from an internally designed system to an outside vendor, or from one vendor of mortgage processing services to a new vendor, is a significant undertaking. These potential clients worry about potential disadvantages such as loss of custom functionality, increased costs and business disruption. As a result, these potential clients often resist change. There can be

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no assurance that our strategies for overcoming potential clients' reluctance to change will be successful, and if we are unsuccessful, it could have a material adverse effect on our business, financial condition and results of operations.
To the extent the availability of free or relatively inexpensive information increases, the demand for some of our data and information solutions may decrease, which could have a material adverse effect on our business, financial condition and results of operations.
Public sources of free or relatively inexpensive information have become increasingly available recently, particularly through the Internet, and this trend is expected to continue. Governmental agencies in particular have increased the amount of information to which they provide free public access. Public sources of free or relatively inexpensive information may reduce demand for, or the price that clients are willing to pay for, our data and information solutions. To the extent that clients choose not to obtain data and information from us and instead rely on information obtained at little or no cost from these public sources, it could have a material adverse effect on our business, financial condition and results of operations.
We rely upon proprietary technology and information rights, and if we are unable to protect our rights, it could have a material adverse effect on our business, financial condition and results of operations.
Our success depends, in part, upon our intellectual property rights. We rely primarily on a combination of patents, copyrights, trade secrets, and trademark laws and nondisclosure and other contractual restrictions on copying, distribution and creation of derivative products to protect our proprietary technology and information. This protection is limited, and our intellectual property could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any infringement, disclosure, loss, invalidity of or failure to protect our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Moreover, litigation may be necessary to enforce or protect our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could be time-consuming, result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.
If our applications or services are found to infringe the proprietary rights of others, we may be required to change our business practices and may also become subject to significant costs and monetary penalties, any of which could have a material adverse effect on our business, financial condition and results of operations.
As our information technology applications and services develop, we may become increasingly subject to infringement claims. Any such claims, whether with or without merit, could:
be expensive and time-consuming to defend;
cause us to cease providing solutions that incorporate the challenged intellectual property; 
require us to redesign our solutions, if feasible;
divert management's attention and resources; and
require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies.
Any one or more of the foregoing outcomes could have a material adverse effect on our business, financial condition and results of operations. Additionally, we may be liable for damages for past infringement if a court determines that our software or technologies infringe upon a third party's patent or other proprietary rights.
If we are unable to successfully consummate acquisitions or experience delays in integrating acquisitions, it could have a material adverse effect on our business, financial condition and results of operations.
One of our strategies to grow our business is to opportunistically acquire complementary businesses, technologies and services. This strategy will depend on our ability to find suitable acquisitions and finance them on acceptable terms. We may require additional debt or equity financing for future acquisitions, and doing so will be made more difficult by our substantial debt. Raising additional capital for acquisitions through debt financing could result in increased interest expense and may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital for acquisitions through equity financing, the ownership interests of existing shareholders will be diluted.
If we are unable to acquire suitable acquisition candidates, we may experience slower growth. Further, we may face challenges in integrating any acquired business. These challenges include eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures and achieving cost reductions and cross-selling opportunities. Additionally, the acquisition and integration processes may disrupt our business and divert management attention and our resources. If we fail to successfully integrate acquired businesses, products, technologies and personnel, it could impair relationships with employees, clients and strategic partners, distract management attention from our core businesses, result in control failures and otherwise disrupt our ongoing business, any of which could have a material adverse effect on our business, financial condition and results of operations. We also may not be able to retain key management

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and other critical employees after an acquisition. In addition, we may be required to record future charges for impairment of goodwill and other intangible assets resulting from such acquisitions.
Our profitability may be affected by gains or losses on any sales of businesses, or lost operating income or cash flows from such businesses. We also may be required to record asset impairment or restructuring charges related to divested businesses, or indemnify buyers for liabilities, which may reduce our profitability and cash flows. We may also be unable to negotiate such divestitures on terms acceptable to us. If we are unsuccessful in divesting such businesses, it could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on third parties subjects us to risk and may disrupt or adversely affect our operations. In addition, we may not realize the full benefit of our third-party arrangements, which may result in increased costs, or may adversely affect the service levels we are able to provide our clients.
We rely upon third parties for various business process and information technology services, including information security testing, telecommunications and software code development. Although we have contractual provisions with our providers that specify performance requirements, we do not ultimately control their performance, which may make our operations vulnerable to their performance failures. In addition, our failure to adequately monitor and regulate the performance of our third-party vendors could subject us to additional risk. Reliance on third parties also makes us vulnerable to changes in our vendors' businesses, financial condition and other matters outside of our control, including their violations of laws or regulations, which could increase our exposure to liability or otherwise increase the costs associated with the operation of our business. The failure of our providers to perform as expected or as contractually required could result in significant disruptions and costs to our operations and to the services we provide to our clients, which could have a material adverse effect on our business, financial condition and results of operations.
We depend on our ability to access data from external sources to maintain and grow our businesses. If we are unable to access needed data from these sources or if the prices charged for these services increase, the quality, pricing and availability of our solutions may be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations.
We rely extensively upon data from a variety of external sources to maintain our proprietary and non-proprietary databases, including data from third-party suppliers, various government and public record sources and data contributed by our clients. Our data sources could cease providing or reduce the availability of their data to us, increase the price we pay for their data or limit our use of their data for a variety of reasons, including legislatively or judicially imposed restrictions on use. If a number of suppliers are no longer able or are unwilling to provide us with certain data, or if our public record sources of data become unavailable or too expensive, we may need to find alternative sources. If we are unable to identify and contract with suitable alternative data suppliers and efficiently and effectively integrate these data sources into our service offerings, we could experience service disruptions, increased costs and reduced quality of our services. Moreover, some of our suppliers compete with us in certain product offerings, which may make us vulnerable to unpredictable price increases from them. Significant price increases could require us to seek substitute sources of data on more favorable economic terms, which may not be available at all. Loss of such access or the availability of data in the future on commercially reasonable terms or at all may reduce the quality and availability of our services and solutions, which could have a material adverse effect on our business, financial condition and results of operations.
Our international third-party service providers and our own international operations subject us to additional risks, which could have a material adverse effect on our business, financial condition and results of operations.
Over the last few years, we have sought to reduce our costs by utilizing lower-cost labor outside the United States in countries such as India. These countries may be subject to higher degrees of political and social instability than the United States and may lack the infrastructure to withstand political unrest or natural disasters. Such disruptions can affect our ability to deliver our solutions on a timely basis, if at all, and to a lesser extent can decrease efficiency and increase our costs. Weakness of the U.S. dollar in relation to the currencies used and higher inflation rates experienced in these countries may also reduce anticipated savings. Furthermore, the practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States and, as a result, many of our clients may require us to use labor based in the United States. We may not be able to pass on the increased costs of higher-priced United States-based labor to our clients, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, the foreign countries in which we have outsourcing arrangements or operate could adopt new legislation or regulations that could make it difficult, more costly or impossible for us to continue our foreign activities as currently being conducted. In addition, in many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act ("FCPA") or other local anti-corruption laws. Any violations of FCPA or local anti-corruption laws by us or our subsidiaries, could result in substantial financial and other penalties, which could have a material adverse effect on our business, financial condition and results of operations.

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We have substantial investments in recorded goodwill and other intangible assets as a result of prior acquisitions, and an economic downturn or troubled mortgage market could cause these investments to become impaired, requiring write-downs that could have a material adverse effect on our results of operations.
Goodwill recorded on our balance sheet was approximately $2.3 billion, or approximately 63% of our total assets, as of December 31, 2017. Other intangible assets recorded on our balance sheet were approximately $231.6 million, or approximately 6% of our total assets. Current accounting rules require that goodwill and other indefinite lived intangible assets be assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable. Current accounting rules require that intangible assets with finite useful lives be assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors that may indicate the carrying value of our intangible assets, including goodwill, may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future results of operations, a significant decline in our stock price and market capitalization, and negative industry or economic trends. No goodwill or other intangible assets impairment charge was recorded during 2017. However, if there is an economic downturn in the future, the carrying amount of our goodwill or other intangible assets may no longer be recoverable, and we may be required to record an impairment charge, which could have a material adverse effect on our results of operations. We will continue to monitor our market capitalization and the effect of the economy to determine if there is an impairment of goodwill or other intangible assets in future periods.
If we fail to develop widespread brand awareness cost-effectively, it could have a material adverse effect on our business, financial condition and results of operations.
We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to our ability to achieve widespread acceptance of our software solutions and attract new clients. Brand promotion activities may not generate client awareness or increase revenues, and even if they do, any increase in revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses, we may fail to attract or retain clients necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad client adoption of our applications, which could have a material adverse effect on our business, financial condition and results of operations.
We may experience system failures with respect to our software solutions, damage or interruption that could harm our business and reputation and expose us to potential liability.
We depend heavily upon the computer systems and our existing technology infrastructure located in our data centers and certain systems interruptions or events beyond our control could interrupt or terminate the delivery of our solutions and services to our clients and may interfere with our suppliers' ability to provide necessary data to us and our employees' ability to attend to work and perform their responsibilities.
These potential interruptions include, but are not limited to, damage or interruption from hurricanes, floods, fires, power losses, telecommunications outages, cyber-based attacks, terrorist attacks, acts of war, human errors and similar events. Our U.S. corporate offices and one of our data centers are located in Jacksonville, Florida, which is an area that is at high risk of hurricane and flood damage. In addition, acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could cause disruptions in our business or the economy as a whole. The servers that we use through various third-party service providers may also be vulnerable to similar disruptions, which could lead to interruptions, delays and loss of critical data. Such service providers may not have sufficient protection or recovery plans in certain circumstances, and our insurance may not be sufficient to compensate us for losses that may occur.
Defects in our software solutions, errors or delays in the processing of electronic transactions, or other difficulties could result in:
interruption of business operations;
delay in market acceptance;
us, or our clients, missing a regulatory deadline;
additional development and remediation costs;
diversion of technical and other resources;
loss of clients;
negative publicity; or
exposure to liability claims.
Any one or more of the foregoing occurrences could have a material adverse effect on our business, financial condition and results of operations. Although we attempt to limit our potential liability through disclaimers and limitation-of-liability provisions in our license and client agreements, we cannot be certain that these measures will be successful in limiting our liability.

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We may experience delays or difficulty in developing or implementing new, enhanced or existing software or hosting solutions, which may negatively affect our relationships with existing and potential clients, reduce or delay the generation of revenues or increase development and implementation costs, which could have a material adverse effect on our business, financial condition and results of operations.
Our future financial performance depends upon the successful development, implementation and client acceptance of new, existing and enhanced versions of our software and hosting solutions. We continually seek to develop enhancements to our solutions, including updates in response to changes in applicable laws, as well as new offerings to supplement our existing solutions. As a result, we are subject to the risks inherent in the development and integration of new technologies, including defects or undetected errors in our software solutions, difficulties in installing or integrating our technologies on platforms used by our clients, or other unanticipated performance, stability and compatibility problems. Any of these problems could result in material delays in the introduction or acceptance of our solutions, increased costs, decreased client satisfaction, breach of contract claims, harm to our industry reputation and reduced or delayed revenues. If we are unable to implement existing solutions or deliver new solutions or upgrades or other enhancements to our existing solutions on a timely and cost-effective basis, it could have a material adverse effect on our business, financial condition and results of operations.
In addition, as a significant focus of our sales efforts is on the top U.S. mortgage originators and servicers, larger clients may demand more complex integration, implementation services and features, which may result in implementations that take longer than we forecast or delays in these clients using our solutions. Furthermore, if implementations take longer than planned or these clients delay their use of our solutions, we may be required to delay revenue recognition on some of these transactions until the technical or implementation requirements have been met and may not generate revenues from these clients as quickly as we had forecast.
Because our revenues from clients in the mortgage lending industry are affected by the strength of the economy and the housing market generally, including the volume of real estate transactions, a change in any of these conditions could have a material adverse effect on our business, financial condition and results of operations.
Our revenues are primarily generated from software, data and analytics we provide to the mortgage industry and, as a result, a weak economy or housing market may have a material adverse effect on our business, financial condition and results of operations. The volume of mortgage origination and residential real estate transactions is highly variable and reductions in these transaction volumes could have a direct effect on the revenues we generate from our software solutions business and some of our data and analytics businesses.
The revenues we generate from our servicing software solutions primarily depend upon the total number of mortgage loans processed on MSP, which tends to be comparatively consistent regardless of economic conditions. However, in the event that a difficult economy or other factors lead to a decline in levels of home ownership and a reduction in the number of mortgage loans outstanding and we are not able to counter the effect of those events with increased market share or higher fees, our MSP revenues could be adversely affected. Moreover, negative economic conditions, including increased unemployment or interest rates or a downturn in other general economic factors, among other things, could adversely affect the performance and financial condition of some of our clients in many of our businesses, which may have a material adverse effect on our business, financial condition and results of operations if these clients go bankrupt or otherwise exit certain businesses.
A weaker economy and housing market tend to increase the volume of consumer mortgage defaults, which can increase revenues from our applications focused on supporting default management functions. However, government regulation of the mortgage industry in general, and the default and foreclosure process in particular, has greatly slowed the processing of defaulted mortgages and has changed the way many of our clients address mortgage loans in default. A downturn in the origination market and a concurrent slowdown or change in the way mortgage loans in default are addressed could have a material adverse effect on our business, financial condition and results of operations.
Our indebtedness could have a negative effect on our financing options and liquidity position.
As of December 31, 2017, we had approximately $1.4 billion of total debt outstanding.
Our indebtedness could have important consequences to us, including:
making us more vulnerable to economic downturns and adverse developments in our business, which may cause us to have difficulty borrowing money in the future for working capital, capital expenditures, acquisitions or other purposes and may limit our ability to pursue other business opportunities and implement certain business strategies;
requiring us to use a large portion of the money we earn to pay principal and interest on our debt, which could reduce the amount of money available to finance operations, acquisitions and other business activities;
exposing us to the risk of increased interest rates as $1.4 billion in principal amount of our debt bears interest at a floating rate as of December 31, 2017 (an increase of one percentage point in the applicable interest rate could cause an increase in interest expense of approximately $14.5 million on an annual basis ($6.5 million including the effect

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of our current interest rate swaps) based on the principal outstanding as of December 31, 2017, which may make it more difficult for us to service our debt);
exposing us to costs and risks associated with agreements limiting our exposure to higher interest rates, as such agreements may not offer complete protection from these risks, and we are subject to the risk that one or more of the counterparties to these agreements may fail to satisfy their obligations under such agreements; and
causing a competitive disadvantage if we have higher levels of debt than our competitors by reducing our flexibility in responding to changing business and economic conditions, including increased competition.
Risks associated with our indebtedness could have a material adverse effect on our business, financial condition and results of operations.
Despite our indebtedness level, we still may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our existing indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the Credit Agreement, as amended, governing the Facilities, as described in Note 11 to the Notes to Consolidated Financial Statements, impose operating and financial restrictions on our activities, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our outstanding debt levels, the risks related to our indebtedness that we will face could increase.
Certain of our financing arrangements subject us to various restrictions that could limit our operating flexibility.
The Credit Agreement, as amended, governing the Facilities impose operating and financial restrictions on our activities, and future debt instruments may as well. These restrictions include compliance with, or maintenance of, certain financial tests and ratios, including a minimum interest coverage ratio and maximum leverage ratio, and limit or prohibit our ability to, among other things:
create, incur or assume any additional debt and issue preferred stock;
create, incur or assume certain liens;
redeem and/or prepay certain subordinated debt we might issue in the future;
pay dividends on our stock or repurchase stock;
make certain investments and acquisitions;
enter into or permit to exit contractual limits on the ability of our subsidiaries to pay dividends to us;
enter new lines of business;
engage in mergers and acquisitions;
engage in specified sales of assets; and
enter into transactions with affiliates.
These restrictions on our ability to operate our business could limit our ability to take advantage of financing, merger and acquisition and other corporate opportunities, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our outstanding debt instruments, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and results of operations, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could have a material adverse effect on our business, financial condition and results of operations. If we cannot make scheduled payments on our debt, we will be in default and holders of our outstanding debt could declare all outstanding principal and interest to be due and payable, and we could be forced into bankruptcy or liquidation.
Our risk management policies and procedures may prove inadequate for the risks we face, which could have a material adverse effect on our business, financial condition and results of operations.
We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Nonetheless, our risk management strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. If our solutions change and as the markets in which we operate evolve, our risk management strategies may not always adapt to such changes. Some of our methods of managing risk are based upon our use of observed historical market behavior and management's judgment. Other of our methods of managing risk depend on the evaluation of information regarding markets, customers, catastrophe occurrence or

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other matters that is publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures or available information indicate. In addition, management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events, which may not be fully effective. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on our business, financial condition and results of operations. In addition, we could be subject to litigation, particularly from our clients, and sanctions or fines from regulators.
Certain members of our Board of Directors and certain of our officers and directors have interests and positions that could present potential conflicts.
We are party to a variety of related party agreements and relationships with FNF, certain of FNF's subsidiaries and THL. One of our executive officers is employed by FNF and certain of our directors serve on the boards of directors of FNF or are affiliated with THL. As a result of the foregoing, there may be circumstances where one of our executive officers and certain directors may be subject to conflicts of interest with respect to, among other things: (i) our ongoing relationships with FNF, FNF's subsidiaries or THL, including related party agreements and other arrangements with respect to the administration of tax matters, employee benefits and indemnification; (ii) the quality, pricing and other terms associated with services that we provide to FNF or its subsidiaries, or that they provide to us, under related party agreements; (iii) business opportunities arising for any of us, FNF, FNF's subsidiaries or THL; and (iv) conflicts of time with respect to matters potentially or actually involving or affecting us.
We have in place a code of business conduct and ethics prescribing procedures for managing conflicts of interest and our chief compliance officer and audit committee are responsible for the review, approval, or ratification of any potential conflicts of interest transactions. Additionally, we expect that interested directors will abstain from decisions with respect to conflicts of interest as a matter of practice. However, there can be no assurance that such measures will be effective or that we will be able to resolve all potential conflicts, or that the resolution of any such conflicts will be no less favorable to us than if we were dealing with an unaffiliated third party.
Our senior leadership team is critical to our continued success and the loss of such personnel could have a material adverse effect on our business, financial condition and results of operations.
Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. We have attempted to mitigate this risk by entering into long-term (two to three year) employment contracts with the members of our senior management operating team and providing long-term incentive compensation with multi-year vesting provisions. We have announced that Anthony Jabbour will assume the role as our Chief Executive Officer ("CEO") on April 1, 2018, and current CEO Thomas Sanzone will become our Vice Chairman of the Board and will assist with the transition. If we lose key members of our senior management operating team or are unable to effect smooth transitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.
We may fail to attract and retain enough qualified employees to support our operations, which could have an adverse effect on our ability to expand our business and service our clients.
Our business relies on large numbers of skilled employees and our success depends on our ability to attract, train and retain a sufficient number of qualified employees. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for employees not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through our current recruiting and retention policies. Increased competition for employees could have a material adverse effect on our ability to expand our business and service our clients, as well as cause us to incur greater personnel expenses and training costs.
We may not be able to effectively achieve our growth strategies, which could adversely affect our business, financial condition and results of operations.
Our growth strategies depend in part on maintaining our competitive advantage with current solutions in new and existing markets, as well as our ability to develop new technologies and solutions to serve such markets. There can be no assurance that we will be able to compete successfully in new markets or continue to compete effectively in our existing markets. If we fail to introduce new technologies or solutions effectively or on a timely basis, or if we are not successful in introducing or obtaining regulatory or market acceptance for new solutions, we may lose market share and our results of operations or cash flows could be adversely affected.

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Current and future litigation, investigations or other actions against us could be costly and time consuming to defend.
We are from time to time subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes and employment claims made by our current or former employees. Litigation can result in substantial costs and may divert management's attention and resources, which may seriously harm our business, financial condition and results of operations. From time to time, we also receive requests for information from various state and federal regulatory authorities, some of which take the form of civil investigative demands or subpoenas. Some of these regulatory inquiries may result in the assessment of fines for violations of regulations or settlements with such authorities requiring a variety of remedies.
Although certain matters may be subject to a cross-indemnity agreement between BKFS LLC and ServiceLink, there can be no assurance that we will not incur additional material costs and expenses in connection with any potential future investigations or claims, including but not limited to fines or penalties and legal costs, or be subject to other remedies, any of which could have a material adverse effect on our business, financial condition and results of operations. Insurance may not cover such investigations and claims, may not be sufficient for one or more such investigations and claims and may not continue to be available on terms acceptable to us. An investigation or claim brought against us that is uninsured or underinsured could result in unanticipated costs, management distraction or reputational harm, which could have a material adverse effect on our business, financial condition and results of operations and adversely affect the trading price of our stock.
The Spin-off could result in significant tax liability to FNF and to holders of FNF Group common stock, and under certain circumstances, we may have a significant indemnity obligation to FNF, which is not limited in amount or subject to any cap, if the Spin-off is treated as a taxable transaction due to our acts or failure to act.
FNF received a private letter ruling from the Internal Revenue Service (“IRS”) in connection with the Spin-off, and an opinion of Deloitte Tax LLP, tax advisor to FNF, to the effect that certain contributions made by FNF to BKHI and the Spin-off qualify as a tax-free reorganization under Sections 368(a) and 355 of the Internal Revenue Code (the “IRC”) and a distribution to which Sections 355 and 361 of the IRC applies, respectively. The IRS private letter ruling and the opinion are based upon various factual representations and assumptions and, in the case of the opinion, certain undertakings, made by FNF and Black Knight. Any inaccuracy in the representations or assumptions upon which such tax opinion was based, or failure by FNF or Black Knight to comply with any undertakings made in connection with such tax opinion, could alter the conclusions reached in such opinion. Opinions with respect to these matters are not binding on the IRS or the courts. As a result, the conclusions expressed in these opinions could be challenged by the IRS and a court could sustain such a challenge.
Even if the Spin-off otherwise qualifies for tax-free treatment under Sections 355, 361 and 368(a) of the IRC, the Spin-off would result in a significant U.S. federal income tax liability to FNF (but not to holders of FNF Group common stock) under Section 355(e) of the IRC if one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of Black Knight as part of a plan or series of related transactions that includes the Spin-off. Current U.S. federal income tax law generally creates a presumption that any acquisitions of the stock of Black Knight within two years before or after the Spin-off are part of a plan that includes the Spin-off, although the parties may be able to rebut that presumption. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. We do not expect that the mergers and the THL Interest Exchange, by themselves, will cause Section 355(e) to apply to the Spin-off. Notwithstanding the IRS ruling and the opinion of Deloitte Tax LLP described above, Black Knight might inadvertently cause or permit a prohibited change in the ownership of Black Knight to occur, thereby triggering a tax liability to FNF. If the Spin-off is determined to be taxable to FNF, FNF would recognize gain equal to the excess of the fair market value of the New BKH common stock held by it immediately before the Spin-off over FNF’s tax basis therein. Open market purchases of Black Knight common stock by third parties without any negotiation with Black Knight will generally not cause Section 355(e) of the IRC to apply to the Spin-off.
In connection with the Spin-off, we entered into a tax matters agreement (the "Tax Matters Agreement") with FNF pursuant to which we are obligated to indemnify FNF for (i) any action by Black Knight, or the failure to take any action within our control which, negates the tax-free status of the transactions; or (ii) direct or indirect changes in ownership of Black Knight equity interests that cause the Spin-off to be a taxable event to FNF as a result of the application of Section 355(e) of the IRC or to be a taxable event as a result of a failure to satisfy the “continuity of interest” or “device” requirements for tax-free treatment under Section 355 of the IRC.
If it is subsequently determined, for whatever reason, that the Spin-off does not qualify for tax-free treatment, holders of FNF Group common stock immediately prior to the Spin-off could incur significant tax liabilities.

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We may decide to forgo certain transactions in order to avoid the risk of incurring significant tax-related liabilities.
Under the Tax Matters Agreement, we covenanted not to take or fail to take any reasonably required action, following the Spin-off, which action or failure to act, would (i) be inconsistent with any covenant or representation made by Black Knight in any document related to the Spin-off, or (ii) prevent, or be reasonably likely to prevent, the tax-free status of the Spin-off. Further, the Tax Matters Agreement requires us to generally indemnify FNF and its subsidiaries for any taxes or losses resulting from any action by Black Knight or our subsidiaries, or the failure to take any action within our control which, negates the tax-free status of the Spin-off; or direct or indirect changes in ownership of Black Knight equity interests that cause the Spin-off to be a taxable event to FNF as a result of the application of Section 355(e) of the IRC or to be a taxable event as a result of a failure to satisfy the “continuity of interest” or “device” requirements for tax-free treatment under Section 355 of the IRC. As a result, we may determine to forgo certain transactions that might have otherwise been advantageous in order to preserve the tax-free treatment of the Spin-off.
In particular, we may determine to continue to operate certain of our business operations for the foreseeable future even if a liquidation or sale of such business might have otherwise been advantageous. Moreover, in light of the mergers as well as certain other transactions that might be treated as part of a plan that includes the Spin-off for purposes of Section 355(e) of the IRC (as discussed above), we may determine to forgo certain transactions, including share repurchases, stock issuances, asset dispositions or other strategic transactions for some period of time following the mergers. In addition, our indemnity obligation under the Tax Matters Agreement might discourage, delay or prevent a third party from entering into a change of control transaction with us for some period of time following the Spin-off.
We will be restricted from pursuing potential business opportunities under the non-competition agreement.
In connection with the Distribution, we entered into a non-competition agreement with FNF pursuant to which we agreed to certain restrictions on the scope of the business that we may conduct for the ten-year period following completion of the transactions, including that we are prohibited from (i) engaging in title generation/escrow services, appraisal or default and field services work (other than technology solutions for such settlement services) without the prior written consent of FNF (subject to an exception allowing us to acquire a business engaged in such restricted services if at least 90% of such business’ revenue is contributed by activities other than such restricted services) and (ii) engaging in certain transactions, such as a merger, sale of assets or sale of greater than 5% of its equity interests, with a buyer that derives 10% or more of its revenue from such restricted services. Although we do not presently engage in any of these restricted services and our current business is not restricted, as a result of these restrictions, we may have to forgo certain transactions that might have otherwise been advantageous in compliance with our obligations under the non-competition agreement.
In particular, the restriction on engaging in a merger, sale of assets or sale of greater than 5% of its equity interests with a buyer that derives 10% or more of its revenue from restricted services may discourage a third party engaged in such restricted services from pursuing such a transaction with us during the ten-year period following completion of the transactions.
Our charter and bylaws and provisions of Delaware law may discourage or prevent strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our shareholders.
Provisions contained in our charter and bylaws and provisions of the Delaware General Corporation Law, or DGCL, could delay or prevent a third party from entering into a strategic transaction with us, as applicable, even if such a transaction would benefit our shareholders. For example, our charter and bylaws:
divide our Board of Directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a change of control;
authorize the issuance of "blank check" preferred stock that could be issued by us upon approval of our Board of Directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive;
provide that directors may be removed from office only for cause and that any vacancy on our Board of Directors may only be filled by a majority of our directors then in office, which may make it difficult for other shareholders to reconstitute our Board of Directors;
provide that special meetings of the shareholders may be called only upon the request of a majority of our Board of Directors or by the chairman of the Board of Directors or our chief executive officer; and
require advance notice to be given by shareholders for any shareholder proposals or director nominees.
By virtue of not opting out of Section 203 of the DGCL in our amended and restated certificate of incorporation, we are subject to Section 203 of the DGCL, which prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time the shareholder became an interested stockholder, subject to certain exceptions, including if, prior to such time, the board of directors approved the business combination or the transaction which resulted in the shareholder becoming an interested stockholder. "Business combinations" include mergers, asset sales and other transactions resulting in a financial benefit to the "interested stockholder." Subject to various exceptions, an "interested stockholder" is a person who, together with his or her affiliates and associates, owns, or within three years did own, 15% or more

22


of the corporation's outstanding voting stock. These restrictions generally prohibit or delay the accomplishment of mergers or other takeover or change of control attempts that are not approved by a company's board of directors.
These restrictions and provisions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by impeding a sale of us.
The market price of our common stock may be volatile and you may lose all or part of your investment.
The market price of our common stock could fluctuate significantly, and you may not be able to resell your shares at or above the price at which your shares were acquired. Those fluctuations could be based on various factors, including those described above and the following:
our operating performance and the performance of our competitors and fluctuations in our operating results;
the public's reaction to our press releases, our other public announcements and our filings with the SEC;
changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry;
global, national or local economic, legal and regulatory factors unrelated to our performance;
announcements of positive news by us or our competitors, such as announcements of new products, services, strategic investments or acquisitions;
announcements of negative news by us or our competitors, such as announcements of poorer than expected results of operations, data breaches or significant litigation;
actual or anticipated variations in our or our competitors' operating results, and our and our competitors' growth rates;
failure by us or our competitors to meet analysts' projections or guidance we or our competitors may give the market;
changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;
changes in accounting standards, policies, guidance, interpretations or principles;
the arrival or departure of key personnel;
the number of shares publicly traded;
future sales or issuances of our common stock, including sales, distributions or issuances by us, our officers or directors and our significant shareholders, including THL and certain of their affiliates; and
other developments affecting us, our industry or our competitors.
In addition, in recent years the stock market has experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic, political and market conditions such as recessions or interest rate changes, may cause declines in the market price of our common stock, and you may not realize any return on your investment in us and may lose some or all of your investment.
As we primarily operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock is influenced in part by the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We may retain future earnings, if any, for future operations, expansion and debt repayment. We have not paid cash dividends to date and have no current plans to pay any cash dividends for the foreseeable future. As a result of our current dividend policy, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. Any future determination to declare and pay cash dividends will be at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our Board of Directors deems relevant. Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization or agreements of our subsidiaries, including agreements governing our indebtedness. Existing or future agreements governing our indebtedness may also limit our ability to pay dividends.

23


Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters is located at 601 Riverside Avenue, Jacksonville, Florida 32204, which we own. We also own a facility in Sharon, Pennsylvania. We lease office space as follows as of December 31, 2017:
Location
 
Number of locations
Texas
 
4

California
 
3

Florida
 
3

Colorado
 
2

Other states (1)
 
8

India
 
2

__________
(1)
Represents one location in each of eight states.
Item 3.
Legal Proceedings
For a description of our legal proceedings see discussion of Commitments and Contingencies in Note 12 to the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report, which is incorporated by reference into this Part I, Item 3.

Item 4.
Mine Safety Disclosure
Not applicable.
PART II
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
On May 26, 2015, we completed the IPO of 18,000,000 shares of BKFS Class A common stock, par value $0.0001 per share ("Class A common stock"), at an offering price of $24.50 per share. We granted the underwriters a 30-day option to purchase an additional 2,700,000 shares of BKFS Class A common stock at the offering price, which was exercised in full. A total of 20,700,000 shares of Class A common stock were issued on May 26, 2015, with net proceeds of $475.1 million, reflecting gross proceeds of $507.2 million, net of underwriting fees of approximately $27.9 million and other offering costs of approximately $4.2 million. The use of the proceeds from the IPO is as follows: approximately $223.6 million for the partial repayment and refinancing of our other outstanding long-term debt, $218.0 million for the partial redemption of the Senior Notes (inclusive of $11.8 million in call premium and $1.4 million in accrued interest), a $17.3 million cash payment to certain THL Intermediaries and $16.2 million to fund operations.
BKFS Class A common stock was listed on the NYSE and traded under the trading symbol "BKFS" from May 20, 2015 through September 29, 2017, the date of the Distribution. Prior to that time, there was no public market for BKFS Class A common stock. There was no established public trading market for BKFS Class B common stock.
We completed the Distribution on September 29, 2017. Shares of Black Knight, Inc. common stock are listed on the NYSE and have been trading under the trading symbol "BKI" since October 2, 2017. The information presented in the table below represents the high and low closing prices per share of Black Knight common stock as reported on the NYSE for the periods indicated.


24


Black Knight
Stock price
high
 
Stock price
low
Year ended December 31, 2017
 
 
 
First quarter
$
40.00

 
$
34.45

Second quarter
41.90

 
38.10

Third quarter
44.75

 
40.70

Fourth quarter
46.85

 
42.00

 
 
 
 
Year ended December 31, 2016
 

 
 

First quarter
$
31.66

 
$
26.00

Second quarter
37.60

 
28.89

Third quarter
41.04

 
37.00

Fourth quarter
40.38

 
35.75

Information concerning securities authorized for issuance under our equity compensation plans will be included in Item 12 of Part III of this Report.
Share Repurchase Program
The following table summarizes share repurchases under our share repurchase program described below during the year ended December 31, 2017:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Program (1)
 
Maximum Number of Shares That May Yet Be Purchased Under the Program (2)
2/3/2017 - 2/28/2017
 

 
$

 

 
10,000,000

3/1/2017 - 3/31/2017
 

 

 

 
10,000,000

4/1/2017 - 4/30/2017
 

 

 

 
10,000,000

5/1/2017 - 5/31/2017
 
416,462

 
39.00
 
416,462

 
9,583,538

6/1/2017 - 6/30/2017
 
773,659

 
39.28
 
773,659

 
8,809,879

7/1/2017 - 7/30/2017
 

 

 

 
8,809,879

8/1/2017 - 8/31/2017
 

 

 

 
8,809,879

9/1/2017 - 9/30/2017
 

 

 

 
8,809,879

10/1/2017 - 10/31/2017
 

 

 

 
8,809,879

11/1/2017 - 11/30/2017
 
2,000,000

 
45.07
 
2,000,000

 
6,809,879

12/1/2017 - 12/31/2017
 

 

 

 
6,809,879

Total
 
3,190,121

 
$
42.87

 
3,190,121

 
6,809,879

_______________________________________________________
(1)
On January 31, 2017, our Board of Directors authorized a three-year share repurchase program, effective February 3, 2017, under which the Company may repurchase up to 10 million shares of its Class A common stock through February 2, 2020, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. In connection with the Distribution, the Black Knight board of directors approved a share repurchase program authorizing the repurchase of shares of Black Knight, Inc. common stock consistent with the previous BKFS share repurchase program.
(2)
As of the last day of the applicable month.


25


PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total return for our common stock from May 20, 2015 (the date BKFS Class A common stock commenced trading on the NYSE) through December 31, 2017, and the S&P 500 Index and the S&P North American Technology Sector Index from May 20, 2015 through December 31, 2017. The data for the S&P 500 Index and the S&P North American Technology Sector Index assumes reinvestment of dividends. The graph assumes an initial investment of $100.00, and the cumulative returns are based on the market price as of each month end. Note that historic stock price performance is not necessarily indicative of future stock price performance.
performancegraph2017118.jpg
*$100 invested on May 20, 2015 in Black Knight or each respective index, including reinvestment of dividends.
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
 
Initial
6/30/15
9/30/15
12/31/15
3/31/16
6/30/16
9/30/16
12/31/16
3/31/17
6/30/17
9/30/17
12/31/17
Black Knight
$100.00
$113.87
$120.07
$121.95
$114.46
$138.69
$150.87
$139.43
$141.28
$151.05
$158.80
$162.86
S&P 500 Index
$100.00
$97.26
$91.00
$97.41
$98.72
$101.15
$105.04
$109.06
$115.68
$119.25
$124.59
$132.87
S&P North American
Technology Sector Index
$100.00
$96.13
$93.14
$102.61
$102.72
$102.14
$114.89
$114.97
$128.53
$134.30
$144.27
$156.64
On January 31, 2018, the closing price of our common stock on the NYSE was $49.50 per share. We had 6,544 holders of record of our common stock. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
We have not declared or paid dividends on our common stock, and we do not intend to pay cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and subject to, among other things, our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements, business prospects and other factors that our Board of Directors may deem relevant. We will evaluate future quarterly dividend payment amounts based on, among other things, our cash flow and liquidity position.
Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, including BKFS LLC, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization or agreements of our subsidiaries, including agreements governing our indebtedness. Future agreements governing our indebtedness may also limit our ability to pay dividends.
There were no unregistered sales of equity securities during the years ended December 31, 2017, 2016 and 2015.
Item 6.
Selected Financial Data
The information set forth below should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.

26


As a result of the Internal Reorganization, BKFS LLC acquired substantially all of the former Technology, Data and Analytics segment of LPS and Commerce Velocity, a former indirect subsidiary of FNF. BKFS LLC did not acquire the former Transaction Services segment of LPS. On June 2, 2014, two wholly-owned subsidiaries of FNF contributed their respective interests in Property Insight to BKFS LLC. In accordance with U.S. generally accepted accounting principles ("GAAP") requirements for transactions between entities under common control, the Consolidated and Combined Financial Statements of BKFS LLC were adjusted to reflect Commerce Velocity and Property Insight as of October 16, 2013, the date on which BKFS LLC was formed. LPS is considered the legal predecessor of BKFS LLC. For financial reporting purposes, BKFS LLC, including Commerce Velocity and Property Insight, is a predecessor for the period from October 16, 2013 through January 1, 2014. The successor period is presented as BKFS LLC for periods subsequent to January 1, 2014 through May 25, 2015, the day prior to the IPO, BKFS for the period from May 26, 2015, the date we completed our IPO, through September 29, 2017, the date of the Distribution, and Black Knight, Inc. for the period from September 30, 2017, the day subsequent to the Distribution, through December 31, 2017.
Selected Historical Consolidated and Combined Financial Data of Black Knight
The Consolidated Statements of Earnings data for the years ended December 31, 2017, 2016 and 2015 and the Consolidated Balance Sheets data as of December 31, 2017 and 2016 are derived from the audited Consolidated Financial Statements of Black Knight included in this Annual Report on Form 10-K. The Combined Statement of Operations data for the year ended December 31, 2014 and the period from October 16, 2013 through December 31, 2013, and the Consolidated Balance Sheets data as of December 31, 2015 and 2014 are derived from the audited Consolidated and Combined Financial Statements of Black Knight and BKFS LLC not included or incorporated by reference into this Annual Report on Form 10-K. The Combined Statement of Operations data for the period from October 16, 2013 through December 31, 2013 and Combined Balance Sheet data as of December 31, 2013 represent the combined financial data of Commerce Velocity and Property Insight that is not included or incorporated by reference into this Annual Report on Form 10-K.

27


 
Successor
 
 
Predecessor
 
Year ended December 31,
 
 
Period from October 16, 2013 through
December 31, 2013
 
2017
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,051.6

 
$
1,026.0

 
$
930.7

 
$
852.1

 
 
$
15.0

Expenses:
 
 
 
 
 
 
 
 
 
 
Operating expenses
569.5

 
582.6

 
538.2

 
514.9

 
 
16.9

Depreciation and amortization
206.5

 
208.3

 
194.3

 
188.8

 
 
1.1

Transition and integration costs
13.1

 
2.3

 
8.0

 
119.3

 
 

Total expenses
789.1

 
793.2

 
740.5

 
823.0

 
 
18.0

Operating income (loss)
262.5

 
232.8

 
190.2

 
29.1

 
 
(3.0
)
Other income and expense:
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(57.5
)
 
(67.6
)
 
(89.8
)
 
(128.7
)
 
 

Other expense, net
(12.6
)
 
(6.4
)
 
(4.6
)
 
(12.0
)
 
 

Total other expense, net
(70.1
)
 
(74.0
)
 
(94.4
)
 
(140.7
)
 
 

Earnings (loss) from continuing operations before income taxes
192.4

 
158.8

 
95.8

 
(111.6
)
 
 
(3.0
)
Income tax (benefit) expense
(61.8
)
 
25.8

 
13.4

 
(5.3
)
 
 

Net earnings (loss) from continuing operations
254.2

 
133.0

 
82.4

 
(106.3
)
 
 
(3.0
)
Loss from discontinued operations, net of tax

 

 

 
(0.8
)
 
 

Net earnings (loss)
254.2

 
133.0

 
82.4

 
(107.1
)
 
 
(3.0
)
Less: Net earnings (loss) attributable to noncontrolling interests
71.9

 
87.2

 
62.4

 
(107.1
)
 
 
(3.0
)
Net earnings attributable to Black Knight
$
182.3

 
$
45.8

 
$
20.0

 
$

 
 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 26, 2015 through December 31, 2015
 
 
 
 
 
 
Year ended December 31,
 
 
 
 
 
 
 
2017
 
2016
 
 
 
 
 
 
Net earnings per share attributable to Black Knight common shareholders:
 
 
 
 
 
 
 
 
 
 
Basic
$
2.06

 
$
0.69

 
$
0.31

 
 
 
 
 
Diluted
$
1.47

 
$
0.67

 
$
0.29

 
 
 
 
 
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
88.7

 
65.9

 
64.4

 
 
 
 
 
Diluted
152.4

 
67.9

 
67.9

 
 
 
 
 

 
Successor
 
 
Predecessor
 
December 31,
 
 
December 31, 2013
 
2017
 
2016
 
2015
 
2014
 
 
 
(In millions)
Balance Sheets Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
16.2

 
$
133.9

 
$
186.0

 
$
61.9

 
 
$
7.4

Total assets
$
3,655.9

 
$
3,762.0

 
$
3,703.7

 
$
3,598.3

 
 
$
88.1

Total debt (current and long-term)
$
1,434.1

 
$
1,570.2

 
$
1,661.5

 
$
2,135.1

 
 
$


28


Selected Historical Combined Financial Data of Commerce Velocity and Property Insight
The following selected unaudited historical combined financial information has been derived from the unaudited financial information of Commerce Velocity and Property Insight that is not included or incorporated by reference into this Annual Report on Form 10-K.
The selected unaudited financial information as of and for the period January 1, 2013 through October 15, 2013 is derived from the historical financial records of FNF.
 
January 1, 2013 through
October 15, 2013
 
 
(In millions)
Statements of Operations Data:
 
Revenues
$
58.2

Net loss
$
(7.2
)
Balance Sheets Data:
 
Total assets
$
79.1

Selected Historical Consolidated Financial Data of LPS
The Consolidated Statement of Operations data for the day ended January 1, 2014 and the Consolidated Balance Sheet data as of January 1, 2014 are derived from the audited Consolidated Financial Statements of LPS not included or incorporated by reference into this Annual Report on Form 10-K. The Consolidated Statement of Operations data for the year ended December 31, 2013 and Consolidated Balance Sheet data as of December 31, 2013, are derived from the audited Consolidated Financial Statements of LPS not included or incorporated by reference into this Annual Report on Form 10-K.
 
Day ended
January 1, 2014
 
Year ended
December 31, 2013 (1)
 
 
 
(In millions, except per share data)
Statements of Operations Data:
 
 
 
Revenues
$

 
$
1,716.2

Net (loss) earnings from continuing operations
$
(39.0
)
 
$
104.2

Net (loss) earnings
$
(39.0
)
 
$
102.7

Net earnings per share - basic from continuing operations
 
 
$
1.22

Net earnings per share - basic
 
 
$
1.20

Weighted average shares - basic
 
 
85.4

Net earnings per share - diluted from continuing operations
 
 
$
1.21

Net earnings per share - diluted
 
 
$
1.19

Weighted average shares - diluted
 
 
85.9

Balance Sheets Data:
 
 
 
Cash and cash equivalents
$
278.4

 
$
329.6

Total assets
$
2,446.6

 
$
2,486.7

Total debt (current and long-term)
$
1,068.1

 
$
1,068.1

Cash dividends per share
$

 
$
0.40

_______________________________________________________
(1)
On June 30, 2014, we completed the sale of PCLender.com, Inc., the results of which have been included in discontinued operations.

29


Selected Quarterly Financial Data of Black Knight (Unaudited)
Selected quarterly financial data is as follows:
 
Quarter Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
 
(In millions, except per share data)
2017
 
 
 
 
 
 
 
Revenues
$
258.1

 
$
262.2

 
$
263.8

 
$
267.5

Earnings before income taxes and noncontrolling interests
$
39.9

 
$
38.3

 
$
53.1

 
$
61.1

Net earnings
$
33.9

 
$
29.2

 
$
43.9

 
$
147.2

Net earnings attributable to Black Knight
$
12.2

 
$
8.2

 
$
14.7

 
$
147.2

Basic earnings per shares attributable to Black Knight
$
0.18

 
$
0.12

 
$
0.22

 
$
0.98

Diluted earnings per share attributable to Black Knight
$
0.18

 
$
0.11

 
$
0.21

 
$
0.97

2016
 
 
 
 
 
 
 
Revenues
$
241.9

 
$
255.5

 
$
267.1

 
$
261.5

Earnings before income taxes and noncontrolling interests
$
39.3

 
$
39.9

 
$
38.7

 
$
40.9

Net earnings
$
33.1

 
$
33.2

 
$
32.4

 
$
34.3

Net earnings attributable to Black Knight
$
11.4

 
$
11.4

 
$
11.2

 
$
11.8

Basic earnings per shares attributable to Black Knight
$
0.17

 
$
0.17

 
$
0.17

 
$
0.18

Diluted earnings per share attributable to Black Knight
$
0.17

 
$
0.17

 
$
0.16

 
$
0.17


Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, our liquidity and capital resources and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Statement Regarding Forward-Looking Information." Our actual results may differ materially from those contained in or implied by the forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Selected Historical Financial Data," "Liquidity and Capital Resources" and the financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.
Except as otherwise indicated or unless the context otherwise requires, all references to "Black Knight," the "Company," "we," "us" or "our" (1) prior to the Distribution (as defined in the "Distribution of FNF's Ownership Interest and Related Transactions" section below), are to Black Knight Financial Services, Inc. ("BKFS"), a Delaware corporation, and its subsidiaries and (2) after the Distribution, are to Black Knight, Inc., a Delaware corporation, and its subsidiaries.
Overview
We are a leading provider of software, data and analytics solutions to the mortgage and consumer loan, real estate and capital market verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle, from origination until asset disposition. We believe we differentiate ourselves by the breadth and depth of our comprehensive, integrated solutions and the insight we provide to our clients.
We have market-leading software solutions combined with comprehensive real estate data and extensive analytic capabilities. Our solutions are utilized by U.S. mortgage originators and servicers, as well as other financial institutions, investors and real estate professionals, to support mortgage lending and servicing operations, analyze portfolios and properties, operate more efficiently, meet regulatory compliance requirements and mitigate risk.
The U.S. mortgage market has undergone significant change, and market participants have been subjected to more stringent oversight in recent years. Regulators have increasingly focused on better disclosure, improved risk mitigation and enhanced oversight. Lenders large and small have experienced higher costs in order to comply with this higher level of regulation. Despite these new regulatory requirements, the mortgage industry remains a competitive marketplace with numerous large lenders and smaller institutions competing for new loan originations. In order to comply with the increased regulatory requirements and compete more effectively, market participants have continued to outsource mission-critical functions to third party technology providers that can offer comprehensive and integrated solutions, which are also cost-effective, due to their deep domain expertise and economies of scale.

30


We believe our comprehensive end-to-end, integrated solutions differentiate us from other software providers and position us particularly well for evolving opportunities. We have served the mortgage and real estate industries for over 50 years and utilize this experience to design and develop solutions that fit our clients' ever-evolving needs. Our proprietary software solutions and data and analytics capabilities reduce manual processes, improve compliance and quality, mitigate risk and deliver significant cost savings to our clients. Our scale allows us to continually and cost-effectively invest in our business in order to meet evolving industry requirements and maintain our position as an industry-standard platform for mortgage market participants.
The table below summarizes active first and second lien mortgages on our mortgage servicing software solution and the related market data, reflecting our leadership in the mortgage servicing software solutions market as of December 31, 2017 and 2016 (in millions):
 
First lien mortgages
 
 
Second lien mortgages
 
Total first and second lien mortgages
 
2017
 
2016
 
 
2017
 
2016
 
2017
 
2016
Active loans
31.6

 
30.9

 
 
2.0

 
1.1

 
33.6

 
32.0

Market size
51.2

(1)
50.9

(1)
 
15.4

(2)
14.8

(2)
66.6

 
65.7

Market share
62
%
 
61
%
 
 
13
%
 
7
%
 
50
%
 
49
%
_______________________________________________________
Note: Percentages above may not recalculate due to rounding.
(1)
According to the December Black Knight Mortgage Monitor Reports as of December 31, 2017 and 2016 for U.S. first lien mortgages.
(2)
According to the November 2017 and February 2017 Equifax National Consumer Credit Trends Reports as of September 30, 2017 and December 31, 2016, respectively, for U.S. second lien mortgages.
Our business is organized into two segments:
Software Solutions - offers software and hosting solutions that support loan servicing, loan origination and settlement services. The Software Solutions segment was formerly known as the Technology segment.
Data and Analytics - offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, prepayment and default models, lead generation, multiple listing service solutions and other data solutions.
We offer our solutions to a wide range of clients across the mortgage and consumer loan, real estate and capital markets verticals. The quality and breadth of our solutions contribute to the long-standing nature of our relationships with our clients, the majority of whom enter into long-term contracts across multiple products that are embedded in their mission critical workflow and decision processes, particularly in the Software Solutions segment. Given the contractual nature of our revenues and stickiness of our client relationships, our revenues are highly visible and recurring in nature. Due to our integrated suite of solutions and our scale, we are able to drive significant operating leverage, which we believe enables our clients to operate more efficiently while allowing us to generate strong margins and cash flows.
The following table sets forth the revenues for our reporting segments and corporate organization (in millions):
 
Year ended December 31,
 
2017
 
2016
 
2015
Software Solutions
$
893.8

 
$
855.8

 
$
765.8

Data and Analytics
162.3

 
177.5

 
174.3

Corporate and Other (1)
(4.5
)
 
(7.3
)
 
(9.4
)
Total
$
1,051.6

 
$
1,026.0

 
$
930.7

_______________________________________________________
(1)
Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.
Our History
Our business generally represents a reorganization of the former Technology, Data and Analytics segment of Lender Processing Services, Inc. ("LPS"), a former provider of integrated technology, data and services to the mortgage industry in the United States that Fidelity National Financial, Inc. ("FNF") acquired in January 2014. Our business also includes the businesses of Fidelity National Commerce Velocity, LLC ("Commerce Velocity") and Property Insight, LLC ("Property Insight"), two companies that were contributed to us by FNF. ServiceLink Holdings, LLC ("ServiceLink"), another majority-owned subsidiary of FNF, operates the Transaction Services businesses of the former LPS as well as FNF's legacy ServiceLink businesses. We were a majority-owned subsidiary of FNF prior to the Distribution as described in the "Distribution of FNF's Ownership Interest and Related Transactions" section below.

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Acquisition of LPS by FNF and Internal Reorganization
On January 2, 2014, FNF acquired LPS (the "Acquisition") and, as a result, LPS became an indirect, wholly-owned subsidiary of FNF. Following the Acquisition, on January 3, 2014, a series of transactions were effected (the "Internal Reorganization"). See Note 1 to the Notes to Consolidated Financial Statements for a more detailed discussion of the Internal Reorganization.
Initial Public Offering
On May 26, 2015, we completed our initial public offering ("IPO") in which we issued and sold 20,700,000 shares of BKFS Class A common stock at a price of $24.50 per share. In connection with our IPO, we effected several reorganization transactions (the "Offering Reorganization"). See Note 1 to the Notes to Consolidated Financial Statements for a more detailed discussion of the IPO.
2016 Acquisitions
On May 16, 2016, we completed our acquisition of eLynx Holdings, Inc. ("eLynx"), a leading lending document and data delivery platform that we now refer to as our eLending business. Our eLending business helps clients in the financial services and real estate industries electronically capture and manage documents and associated data throughout the document lifecycle. We purchased eLynx to augment our origination software business. This acquisition positions us to electronically support the full mortgage origination process.
On June 22, 2016, we completed our acquisition of Motivity Solutions, Inc. ("Motivity"), which provides customized mortgage business intelligence software solutions. Motivity, along with our LoanSphere product suite, including the LoanSphere Data Hub, provides clients with deeper insights into their origination and servicing operations and portfolios.
Recent Developments
Realignment of Property Insight
Effective January 1, 2017, Property Insight realigned its commercial relationship with FNF. In connection with the realignment, Property Insight employees responsible for title plant posting and maintenance were transferred to FNF. Under the new commercial arrangement, we continue to own the title plant technology and retain sales responsibility for third parties, other than FNF. As a result of the realignment, we no longer recognize revenues or expenses related to title plant posting and maintenance, but charge FNF a license fee for use of the technology to access and maintain the title plant data. Had the realignment taken place on January 1, 2016, our 2016 revenues and expenses would have been lower by approximately $30 million with essentially no effect to operating income. This transaction did not result in any gain or loss.
Share Repurchase Program
During the year ended December 31, 2017, we repurchased approximately 1.2 million shares of BKFS Class A common stock and 2.0 million shares of Black Knight, Inc. common stock for an aggregate purchase price of $136.7 million, or an average of $42.87 per share. As of December 31, 2017, we had approximately 6.8 million shares remaining under our share repurchase authorization. Refer to Note 1 of the Notes to Consolidated Financial Statements for additional information related to our share repurchase program.
On February 15, 2018, we repurchased 2.0 million shares of our common stock for $92.8 million, or at a price of $46.41 per share.
Term B Loan Repricing
On February 27, 2017, we repriced our Term B Loan, as described in Note 11 to the Notes to Consolidated Financial Statements. Refer to Note 11 to the Notes to Consolidated Financial Statements for additional information related to the Term B Loan repricing.
Debt Refinancing and Senior Notes Redemption
On April 26, 2017, we refinanced our Term A Loan and Revolving Credit Facility and redeemed the outstanding Senior Notes, as described in Note 11 to the Notes to Consolidated Financial Statements. Refer to Note 11 to the Notes to Consolidated Financial Statements for additional information related to the debt refinancing and Senior Notes redemption.
Distribution of FNF's Ownership Interest and Related Transactions
On September 29, 2017, we completed a tax-free plan whereby FNF distributed all 83.3 million shares of BKFS common stock that it owned to FNF Group shareholders through a series of transactions (the "Distribution") as described in Note 1 of the Notes to Consolidated Financial Statements.
Following the closing of the transactions, shares of Black Knight, Inc. common stock are listed on the New York Stock Exchange under the trading symbol “BKI”, and began trading on October 2, 2017. Under the organizational documents of Black

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Knight, Inc., the rights of the holders of shares of Black Knight, Inc. common stock are substantially the same as the rights of former holders of BKFS Class A common stock.
As a result of the Distribution and related transactions, our consolidated statements of earnings will reflect a higher effective tax rate more closely aligned with other C-corporations in the U.S. and will no longer reflect net earnings attributable to noncontrolling interests.
Our Corporate Structure
Prior to the Distribution, BKFS conducted its business through Black Knight Financial Services, LLC ("BKFS LLC") and its subsidiaries. We had a sole managing member interest in BKFS LLC, which granted us the exclusive authority to manage, control and operate the business and affairs of BKFS LLC and its subsidiaries, pursuant to the terms of its Second Amended and Restated Limited Liability Company Agreement ("LLC Agreement"). Under the terms of the LLC Agreement, we are authorized to manage the business of BKFS LLC, including enter into contracts, manage bank accounts, hire employees and agents, incur and pay debts and expenses, merge or consolidate with other entities and pay taxes. We consolidated BKFS LLC in our consolidated financial statements and reported noncontrolling interests related to the membership interests ("Units") in BKFS LLC held by Black Knight Holdings, Inc. ("BKHI") and certain affiliates of THL ("THL Affiliates"). Our shareholders indirectly controlled BKFS LLC through our managing member interest.
FNF, through BKHI, and certain THL affiliates held Units and a number of shares of BKFS Class B common stock equal to the number of Units held by each such owner.
Prior to the Distribution, our corporate structure, as described above, was commonly referred to as an "Up-C" structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering. Our Up-C structure allowed the owners of BKFS LLC to realize tax benefits associated with ownership interests in an entity that was treated as a partnership, or "passthrough" entity, for income tax purposes. These benefits included limiting entity level corporate taxes. Because Units were exchangeable for cash from BKFS LLC or, at our option, shares of BKFS Class A common stock, the Up-C structure also provided the owners of BKFS LLC potential liquidity that holders of privately held limited liability companies are not typically afforded. The owners of BKFS LLC also had voting rights in Black Knight equal to those of holders of BKFS Class A common stock through their ownership of shares of BKFS Class B common stock. BKFS also held Units and received the same benefits as the other holders of Units on account of its ownership in an entity treated as a partnership, or passthrough entity, for income tax purposes. Meanwhile, holders of BKFS Class A common stock had economic and voting rights similar to those of holders of common stock of non-Up-C structured public companies.
Generally, we received a pro-rata share of any distributions made by BKFS LLC to its members, which included us, BKHI and certain THL Affiliates. However, pursuant to the LLC Agreement, BKFS LLC was required to make tax distributions to help each of the holders of the Units pay taxes according to such holder's allocable share of taxable income rather than on a pro-rata basis. Additionally, tax distributions were required to be made based upon an assumed tax rate. Funds used by BKFS LLC to satisfy its tax distribution obligations were not available for reinvestment in our business.
BKFS was a holding company and its sole asset was its interest in BKFS LLC. BKFS, through its sole managing member interest, had 100% of the voting power in BKFS LLC and, through its ownership of Units, had 44.5% of the economic interests in BKFS LLC immediately following the IPO. Investors in BKFS held an indirect interest in BKFS LLC through us.
Subsequent to the Distribution and related transactions, BKFS LLC is an indirect wholly-owned subsidiary of Black Knight, Inc. and there are no noncontrolling interests in BKFS LLC. In addition, the Up-C structure is no longer in place.
Basis of Presentation
As a result of the Internal Reorganization, IPO and Offering Reorganization and Distribution, and for the purposes of this "Management's Discussion and Analysis of Financial Condition and Results of Operations," our financial position, results of operations and cash flows include:
the consolidated financial position, results of operations and cash flows of Black Knight, Inc. for the period September 30, 2017, the day subsequent to the Distribution, through December 31, 2017;
the consolidated financial position, results of operations and cash flows of BKFS for the period following the completion of our IPO on May 26, 2015 through September 29, 2017, the date of the Distribution; and
the consolidated financial position, results of operations and cash flows of BKFS LLC for the period from January 1, 2015 through May 25, 2015, the day prior to the completion of our IPO.
Business Trends and Conditions
General
The U.S. mortgage market is large, and the loan lifecycle is complex and consists of several stages. The mortgage loan lifecycle includes origination, servicing and default. Mortgages are originated to finance home purchases or refinance existing mortgages.

33


Once a mortgage is originated, it is serviced on a periodic basis by mortgage servicers, which may not be the lenders that originated the mortgage. Furthermore, if a mortgage experiences default, it triggers a set of multifaceted processes with an assortment of potential outcomes depending on a mix of variables.
Underlying the three major components of the mortgage loan lifecycle are the software, data and analytics support behind each process, which has become increasingly critical to industry participants due to the complexity of regulatory requirements. As the industry has grown in complexity, participants have responded by outsourcing to large scale specialty providers, automating manual processes and seeking end-to-end solutions that support the processes required to manage the entire mortgage loan lifecycle.
The U.S. mortgage market has seen significant change since the financial crisis and is expected to continue to evolve going forward. Key regulatory actions arising from the financial crisis, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") and the establishment of the Consumer Financial Protection Bureau ("CFPB"), imposed new and evolving standards for market participants. These regulatory changes have spurred lenders and servicers to seek software solutions that facilitate the meeting of compliance obligations in the face of a changing regulatory environment while remaining efficient and profitable.
Evolving regulation. Most U.S. mortgage market participants have become subject to increased regulatory oversight and regulatory requirements as federal and state governments have enacted various new laws, rules and regulations. One example of such legislation is the Dodd-Frank Act, which contained broad changes for many sectors of the financial services and lending industries and established the CFPB, the federal regulatory agency responsible for regulating consumer financial protection within the United States. It is our experience that mortgage lenders have become more focused on minimizing the risk of non-compliance with these evolving regulations and are looking toward technologies and solutions that help them to comply with the increased regulatory oversight and requirements.
Lenders increasingly focused on core operations. As a result of greater regulatory scrutiny and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe that lenders are increasingly shifting from in-house technologies to solutions with third-party providers who can provide better technology and services more efficiently. Lenders require these vendors to provide best-in-class technology and deep domain expertise and to assist them in maintaining regulatory compliance.
Growing role of technology in the U.S. mortgage industry. Banks and other lenders and servicers have become increasingly focused on technology automation and workflow management to operate more efficiently and meet their regulatory guidelines. We believe that vendors must be able to support the complexity of the market, display extensive industry knowledge and possess the financial resources to make the necessary investments in technology to support lenders.
Increased demand for enhanced transparency and analytic insight. As U.S. mortgage market participants work to minimize the risk in lending, servicing and capital markets, they rely on the integration of data and analytics with technologies that enhance the decision-making process. These industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals.
Mortgage Originations
Our various businesses are affected differently by the level of mortgage originations, including refinancing transactions. Our mortgage servicing software solution is less affected by varying levels of mortgage originations because it earns revenues based on the total number of mortgage loans it processes, which tend to stay more constant than the market for originations. Our origination software and some of our data businesses are directly affected by the volume of real estate transactions and mortgage originations, but many of our client contracts for origination software contain minimum charges.
Economic Conditions
Our various businesses are also affected by general economic conditions. For example, in the event that a difficult economy or other factors lead to a decline in levels of home ownership and a reduction in the number of mortgage loans outstanding and we are not able to counter the effect of those events with increased market share or higher fees, it could have a material adverse effect on our mortgage processing revenues. In contrast, we believe that a weaker economy tends to increase the volume of consumer mortgage defaults, which can increase the revenues in our specialty servicing software business that is used to service residential mortgage loans in default. Also, interest rates tend to decline in a weaker economy driving higher than normal refinance transactions that provide potential volume increases to our origination software offerings, most specifically the Exchange platform.

34


Regulatory Requirements
In recent years, there has been an increased legislative and regulatory focus on consumer protection practices. As a result, federal and state governments have enacted various new laws, rules and regulations. One example of such legislation is the Dodd-Frank Act, which was signed into law in July 2010. The Dodd-Frank Act contained broad changes for many sectors of the financial services and lending industries and established the CFPB, the federal regulatory agency responsible for regulating consumer financial protection within the U.S. This has led banks and other lenders to seek software solutions that assist them in satisfying their regulatory compliance obligations in the face of a changing regulatory environment. We have developed solutions that target this need, which has resulted in additional revenues.
The CFPB has issued guidance that applies to "supervised service providers," which the CFPB has defined to include service providers, like us, to CFPB-supervised banks and non-banks. In addition, the Dodd-Frank Act contains the Mortgage Reform and Anti-Predatory Lending Act that imposes a number of additional requirements on lenders and servicers of residential mortgage loans. It is difficult to predict the form that new rules or regulations implemented by the CFPB or other regulations implemented under other requirements of the Dodd-Frank Act may take, what additional legislative or regulatory changes may be approved in the future, or whether those changes may require us to change our business practices or incur increased costs of compliance.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("Tax Reform Act") was signed into law. Among other provisions, the Tax Reform Act reduces the Federal statutory corporate income tax rate from 35% to 21%. During the fourth quarter of 2017, we recorded a one-time non-cash net tax benefit of $110.9 million related to the revaluation of our deferred income tax assets and liabilities as a result of the Tax Reform Act, as described in Note 15 to the Notes to Consolidated Financial Statements. The effect of this adjustment on our 2017 effective tax rate was (57.6)%. We expect our 2018 effective tax rate to be approximately 26% to 27%.
Our estimates of the expected 2018 effective tax rate are based on certain assumptions and our current interpretation of the Tax Reform Act, and may change as we refine our analysis and as further information becomes available.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based upon audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, goodwill and other intangible assets and computer software. These judgments are based on our historical experience, terms of our existing contracts, our evaluation of trends in the industry, information provided by our clients and information available from outside sources as appropriate. Our actual results may differ from those estimates. See Note 2 to the Notes to Consolidated Financial Statements for additional description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements.
The accounting policies described below are the ones that we consider to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgment.
Revenue Recognition
We recognize revenues in accordance with Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("ASC 605"). Recording revenues requires judgment, including determining whether an arrangement includes multiple elements, whether any of the elements are essential to the functionality of any other elements and the allocation of the consideration based on each element's relative selling price. Clients receive certain contract elements over time and changes to the elements in an arrangement or, in our determination, to the relative selling price for these elements, could materially affect the amount of earned and unearned revenues reflected in our financial statements.
The primary judgments relating to our revenue recognition include determining whether (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller's price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. Judgment is also required to determine whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting.
If the deliverables under a contract are software related, we determine the appropriate units of accounting and how the arrangement consideration should be measured and allocated to the separate units. This determination, as well as management's ability to establish vendor specific objective evidence ("VSOE") of the fair value for the individual deliverables can affect both

35


the amount and the timing of revenue recognition under these agreements. The inability to establish VSOE of the fair value for each contract deliverable results in having to record deferred revenues and/or applying the residual method. For arrangements where we determine VSOE of the fair value for software maintenance using a stated renewal rate within the contract, we use judgment to determine whether the renewal rate represents fair value for that element as if it had been sold on a stand-alone basis. For a small percentage of revenues, we use contract accounting when the arrangement with the client includes significant customization, modification or production of software. For elements accounted for under contract accounting, revenues are recognized using the percentage-of-completion method since reasonably dependable estimates of revenues and contract hours applicable to various elements of a contract can be made.
We are often party to multiple concurrent contracts with the same client. These situations require judgment to determine whether the individual contracts should be aggregated or evaluated separately for purposes of revenue recognition. In making this determination we consider the timing of negotiating and executing the contracts, whether the different elements of the contracts are interdependent and whether any of the payment terms of the contracts are interrelated.
Due to the large number, broad nature and average size of individual contracts we are a party to, the effect of judgments and assumptions we apply in recognizing revenues for any single contract is not likely to have a material effect on our consolidated operations. However, the broader accounting policy assumptions that we apply across similar arrangements or classes of clients could significantly influence the timing and amount of revenues recognized in our results of operations.
Goodwill and Other Intangible Assets
We have significant intangible assets that were recorded in connection with business acquisitions. These assets primarily consist of client relationships, intellectual property and the excess of purchase price over the fair value of identifiable net assets acquired (goodwill).
As of December 31, 2017, goodwill was $2,306.8 million. Goodwill is not amortized, but is tested for impairment annually or more frequently if circumstances indicate potential impairment. In evaluating the recoverability of goodwill, we perform a qualitative analysis for each reporting unit to determine whether it is more likely than not that the fair value of each reporting unit exceeds its carrying value. Based on the results of this qualitative analysis, a quantitative goodwill impairment test may be completed using the discounted future cash flows generated by the underlying assets. The process of determining whether or not an asset, such as goodwill, is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Such projections are inherently uncertain and, accordingly, actual future cash flows may differ materially from projected cash flows. A quantitative goodwill impairment analysis is sensitive to changes in estimates of future net cash flows and discount rates. Changes to these estimates might result in material changes in the fair value of the reporting units and determination of the recoverability of goodwill that may result in charges against earnings and a reduction in the carrying value of our goodwill. We have completed our annual goodwill impairment analysis in each of the past three years and, as a result, no impairment charges were recorded to goodwill in 2017, 2016 and 2015.
As of December 31, 2017, intangible assets, net of accumulated amortization, were $231.6 million, which consists primarily of client relationships. Long-lived assets and intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The valuation of these assets involves significant estimates and assumptions concerning matters such as client retention, future cash flows and discount rates. If any of these assumptions change, it could affect the recoverability of the carrying value of these assets. Client relationships are amortized over their estimated useful lives using an accelerated method that takes into consideration expected client attrition rates over a period of up to 10 years from the acquisition date. All intangible assets that have been determined to have indefinite lives are not amortized, but are reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles-Goodwill and Other, or ASC 350. The initial determination of estimated useful lives and the allocation of the purchase price to the fair values of the intangible assets other than goodwill require significant judgment and may affect the amount of future amortization of such intangible assets.
Definite-lived intangible assets are amortized over their estimated useful lives ranging from 5 to 10 years using accelerated methods. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from intangible assets. We have not historically experienced material changes in these estimates but could be subject to them in the future.
Computer Software
Computer software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. As of December 31, 2017, computer software, net of accumulated amortization, was $416.8 million. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, ranging from 3 years to 10 years.
Capitalized software development costs are accounted for in accordance with either ASC Topic 985, Software, Subtopic 20, Costs of Software to Be Sold, Leased, or Marketed, or ASC 350, Subtopic 40, Internal-Use Software. For computer software

36


products to be sold, leased, or otherwise marketed (ASC 985-20 software), all costs incurred to establish the technological feasibility are research and development costs, and are expensed as they are incurred. Costs incurred subsequent to establishing technological feasibility, such as programmers' salaries and related payroll costs and costs of independent contractors, are capitalized and amortized on a product-by-product basis commencing on the date of general release to clients. We do not capitalize any costs once the product is available for general release to clients. For internal-use computer software products (ASC 350-40 software), internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product-by-product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use. Internally developed software costs are amortized using straight-line or accelerated methods over the estimated useful life. Useful lives of computer software range from 3 years to 10 years.
We also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from computer software. We have not historically experienced material changes in these estimates but could be subject to them in the future.
Factors Affecting the Comparability of Our Results of Operations
As a result of a number of factors, our results of operations for periods prior to the IPO and the debt refinancing, as described in Note 11 to the Notes to Consolidated Financial Statements, are not comparable to periods thereafter. Also, our results of operations for periods prior to the Distribution and Tax Reform Act are not comparable to periods thereafter. Our historical results of operations are not be comparable to our results of operations in future periods as a result of these and a number of other factors. In addition, our results of operations may vary from period to period. Set forth below is a brief discussion of the key factors affecting the comparability of our results of operations.
Related Party Transactions. We are party to certain transactions with entities that became our related parties on January 2, 2014 as part of the Acquisition. For example, prior to our IPO, we had a management agreement with each of THL Managers VI, LLC and FNF pursuant to which we received services in exchange for a fee for such services in the annual amount of $3.2 million to THL Managers VI, LLC and $5.8 million to FNF. Following our IPO, we no longer pay these management fees. The other related party transactions with FNF, THL, THL Managers VI, LLC, THL Affiliates and ServiceLink do not have a material effect on the comparability of our results of operations.
Interest Expense. We used a portion of the proceeds from our IPO to reduce our outstanding debt by repaying a portion of the Senior Notes and Former Intercompany Notes, as described in Note 11 to the Notes to Consolidated Financial Statements. Also, on May 27, 2015, we entered into a credit agreement for new facilities with lower interest rates to refinance the remaining balance of our former intercompany notes and former mirror note with FNF. Subsequent to May 26, 2015, we paid FNF a guarantee fee for its ongoing guarantee of the Senior Notes. Our total long-term debt outstanding decreased from $2,135.1 million at December 31, 2014 to $1,661.5 million as of December 31, 2015. Our total long-term debt outstanding further declined to $1,570.2 million as of December 31, 2016. As a result of the decrease in total long-term debt outstanding and the lower interest rates with the new facilities, our interest expense is significantly lower in periods following our IPO. In addition, during 2017, we repriced our Term B Loan and refinanced our Term A Loan and Revolving Credit Facility. We also redeemed the Senior Notes and no longer pay FNF a guarantee fee.
Income Taxes. Our effective tax rate for the years ended December 31, 2017, 2016 and 2015 was (32.1)%, 16.2% and 14.0%, respectively. The decrease in the rate in 2017 is due primarily to the effect of the revaluation of our net deferred income tax liability as a result of the Tax Reform Act, partially offset by a higher effective tax rate related to the period subsequent to the Distribution.
Key Components of Results of Operations
Revenues
We generate revenues primarily through contractual arrangements that we enter into with clients to provide software and software-related services either individually or as part of an integrated offering of multiple services. These arrangements occasionally include offerings from more than one business unit to the same client.
The following is a description of our revenues by segment:
Software Solutions
Our Software Solutions segment revenues are primarily derived from hosted software, licensed software and software-related services. In some cases, these services are offered in combination with one another, and in other cases we offer them individually. Revenues from hosted software are typically volume-based and depend on factors such as the number of accounts processed, transactions processed and computer resources utilized.

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Data and Analytics
Our Data and Analytics segment revenues are primarily derived from data and valuation-related services. Our Data and Analytics segment owns or licenses data assets that primarily include loan information and property sales and characteristic information. We both license our data directly to our clients and provide our clients with analytical products and workflow solutions for risk management, multiple listing services, title insurance underwriting, collateral assessment and loan quality reviews.  
Expenses
The following is a brief description of the components of our expenses:
Operating expenses include payroll, employee benefits, occupancy costs, data processing costs, program design and development costs and professional services.
Transition and integration costs for 2017 primarily represent legal and professional fees related to the Distribution and transition-related costs as we transfer certain corporate functions from FNF. In 2016, these consist of incremental costs associated with acquisitions and professional services related to the Distribution. In 2015, these consist of costs related to our IPO, as well as member management fees through May 25, 2015.
Depreciation and amortization expense consists of our depreciation related to investments in property and equipment, including information technology hardware, as well as amortization of purchased and developed software and other intangible assets, principally client relationship assets recorded in connection with acquisitions. It also includes the amortization of previously deferred implementation-related expenses.
Interest expense subsequent to May 26, 2015 consists of interest on the Senior Notes through April 25, 2017, interest on our new credit facilities, commitment fees on our revolving credit facility, administrative agent fees, rating agency fees and a guarantee fee that we paid FNF for its ongoing guarantee of the Senior Notes through April 25, 2017. See Note 11 in the Notes to Consolidated Financial Statements for a more detailed discussion of our Interest expense and the Senior Notes redemption. From January 1, 2015 through May 26, 2015, Interest expense consisted of interest on the Senior Notes and interest on the former intercompany notes and the former mirror note that were payable to FNF.
Other expense, net for 2017 primarily consisted of amounts related to the Senior Notes redemption, Term A Loan and Revolving Credit Facility refinancing and the Term B Loan repricing. Other expense, net for 2016 primarily consisted of legal fees associated with litigation matters. Other expense, net for 2015 includes a $4.8 million net loss on the partial redemption of the Senior Notes, as described in Note 11 to the Notes to Consolidated Financial Statements.
Income tax (benefit) expense represents federal, state, local and foreign taxes based on income attributable to Black Knight in multiple jurisdictions. In 2017, it includes a one-time non-cash net tax benefit of $110.9 million related to the revaluation of our deferred income tax assets and liabilities as a result of the Tax Reform Act.

38


Results of Operations
Key Performance Metrics
We use Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performance. We believe these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, including determining a portion of executive compensation. We also present these non-GAAP financial performance measures because we believe investors, analysts and rating agencies consider them useful in measuring our ability to meet our debt service obligations. By disclosing these non-GAAP financial performance measures, we believe we offer investors a greater understanding of, and an enhanced level of transparency into, the means by which our management operates the company. These non-GAAP financial measures are not measures presented in accordance with GAAP, and our use of these terms may vary from that of others in our industry. These non-GAAP financial measures should not be considered as an alternative to net earnings, operating income, revenues, cash provided by operating activities or any other measures derived in accordance with GAAP as measures of operating performance or liquidity.
Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin for the Software Solutions and Data and Analytics segments are presented in conformity with Accounting Standards Codification 280, Segment Reporting. These measures are reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For these reasons, these measures are excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's ("SEC") Regulation G and Item 10(e) of Regulation S-K.
Adjusted Revenues — We define Adjusted Revenues as Revenues adjusted to include the revenues that were not recorded by us during the periods presented due to the deferred revenue purchase accounting adjustment recorded in accordance with GAAP. These adjustments are reflected in Corporate and Other.
Adjusted EBITDA — We define Adjusted EBITDA as Net earnings, with adjustments to reflect the addition or elimination of certain income statement items including, but not limited to:
Depreciation and amortization;
Interest expense;
Income tax (benefit) expense;
Other expense, net;
Loss (gain) from discontinued operations, net of tax;
deferred revenue purchase accounting adjustment recorded in accordance with GAAP;
equity-based compensation, including related payroll taxes;
costs associated with debt and/or equity offerings, including the Distribution;
spin-off related transition costs;
member management fees paid to FNF and THL Managers, LLC; and
acquisition-related costs.
These adjustments are reflected in Corporate and Other.
Adjusted EBITDA Margin — Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Adjusted Revenues.

39


Consolidated Results of Operations
The following table presents certain financial data for the periods indicated (dollars in millions):
 
Year ended December 31,
 
2017
 
2016
 
2015
Revenues
$
1,051.6

 
$
1,026.0

 
$
930.7

Expenses:
 
 
 
 
 
Operating expenses
569.5

 
582.6

 
538.2

Depreciation and amortization
206.5

 
208.3

 
194.3

Transition and integration costs
13.1

 
2.3

 
8.0

Total expenses
789.1

 
793.2

 
740.5

Operating income
262.5

 
232.8

 
190.2

Operating margin
25.0
%
 
22.7
%
 
20.4
%
Interest expense
(57.5
)
 
(67.6
)
 
(89.8
)
Other expense, net
(12.6
)
 
(6.4
)
 
(4.6
)
Earnings before income taxes
192.4

 
158.8

 
95.8

Income tax (benefit) expense
(61.8
)
 
25.8

 
13.4

Net earnings
$
254.2

 
$
133.0

 
$
82.4

 
 
 
 
 
 
Key Performance Metrics (Non-GAAP)
 
 
 
 
 
Adjusted Revenues
$
1,056.1

 
$
1,033.3

 
$
940.3

Adjusted EBITDA
$
505.8

 
$
463.1

 
$
413.5

Adjusted EBITDA Margin
47.9
%
 
44.8
%
 
44.0
%

A reconciliation of the above non-GAAP financial measures to the most directly comparable GAAP financial measures is presented in the tables below (in millions):
 
Year ended December 31,
 
2017
 
2016
 
2015
Revenues
$
1,051.6

 
$
1,026.0

 
$
930.7

Deferred revenue purchase accounting adjustment
4.5

 
7.3

 
9.6

Adjusted Revenues
$
1,056.1

 
$
1,033.3

 
$
940.3



40


 
Year ended December 31,
 
2017
 
2016
 
2015
Net earnings
$
254.2

 
$
133.0

 
$
82.4

Depreciation and amortization
206.5

 
208.3

 
194.3

Interest expense
57.5

 
67.6

 
89.8

Income tax (benefit) expense
(61.8
)
 
25.8

 
13.4

Other expense, net
12.6

 
6.4

 
4.6

EBITDA
469.0

 
441.1

 
384.5

Deferred revenue purchase accounting adjustment
4.5

 
7.3

 
9.6

Equity-based compensation
19.2

 
12.4

 
11.4

Debt and/or equity offering expenses

7.5

 
0.6

 
4.4

Spin-off related transition costs
5.6

 

 

Management fees


 

 
3.6

Acquisition-related costs

 
1.7

 

Adjusted EBITDA
$
505.8

 
$
463.1

 
$
413.5

Adjusted EBITDA Margin
47.9
%
 
44.8
%
 
44.0
%

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues
Consolidated Revenues were $1,051.6 million in 2017 and $1,026.0 million in 2016, an increase of $25.6 million, or 2%. The change in revenues is discussed further at the segment level below.
The following table sets forth revenues by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
893.8

 
$
855.8

Data and Analytics
162.3

 
177.5

Corporate and Other (1)
(4.5
)
 
(7.3
)
Total
$
1,051.6

 
$
1,026.0

_______________________________________________________
(1)
Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.
Software Solutions
Revenues were $893.8 million in 2017 compared to $855.8 million in 2016, an increase of $38.0 million, or 4%. Our servicing software business grew 8%, or $56.7 million, primarily driven by higher loan volumes on our core servicing software solution, which increased 3.3% to 33.0 million average loans, price increases and higher transactional volumes. Our origination software business declined 11%, or $18.7 million, primarily driven by lower Exchange volumes as a result of a decline in refinancing originations, consulting revenues and client contract termination fees, partially offset by incremental revenues from the eLynx acquisition.
Data and Analytics
Revenues were $162.3 million in 2017 compared to $177.5 million in 2016, a decrease of $15.2 million, or 9%. The decrease was driven by the effect of the Property Insight realignment, partially offset by incremental revenues from the Motivity acquisition and growth in our property data and multiple listing service businesses. Had the realignment taken place on January 1, 2016, revenues for 2016 would have been lower by $30.1 million.
Operating Expenses
Consolidated Operating expenses were $569.5 million in 2017 compared to $582.6 million in 2016, a decrease of $13.1 million, or 2%. The changes in operating expenses are discussed further at the segment level below.

41


The following table sets forth operating expenses by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
370.8

 
$
368.0

Data and Analytics
130.4

 
151.0

Corporate and Other
68.3

 
63.6

Total
$
569.5

 
$
582.6

Software Solutions
Operating expenses were $370.8 million in 2017 compared to $368.0 million in 2016, an increase of $2.8 million, or 1%. The increase was primarily due to the eLynx acquisition.
Data and Analytics
Operating expenses were $130.4 million in 2017 compared to $151.0 million in 2016, a decrease of $20.6 million, or 14%. The decrease was primarily driven by the Property Insight realignment, partially offset by the Motivity acquisition and the effect of costs associated with the data hub.
Corporate and Other
Operating expenses were $68.3 million in 2017 compared to $63.6 million in 2016, an increase of $4.7 million, or 7%. The increase was primarily driven by higher equity-based compensation and professional fees, partially offset by lower incentive bonus accruals.
Depreciation and Amortization
Consolidated Depreciation and amortization was $206.5 million in 2017 compared to $208.3 million in 2016, a decrease of $1.8 million, or 1%. The changes in depreciation and amortization are discussed further at the segment level below.
The following table sets forth depreciation and amortization by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
98.9

 
$
106.2

Data and Analytics
15.1

 
8.8

Corporate and Other (1)
92.5

 
93.3

Total
$
206.5

 
$
208.3

_______________________________________________________
(1)
Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP.
Software Solutions
Depreciation and amortization was $98.9 million in 2017 compared to $106.2 million in 2016, a decrease of $7.3 million, or 7%. The decrease is primarily due to lower deferred contract costs amortization and software amortization.
Data and Analytics
Depreciation and amortization was $15.1 million in 2017 compared to $8.8 million in 2016, an increase of $6.3 million, or 72%. The increase is primarily due to increased depreciation from both computer hardware and new software development.
Transition and Integration Costs
Consolidated Transition and integration costs were $13.1 million in 2017 compared to $2.3 million in 2016, an increase of $10.8 million. Transition and integration costs in 2017 primarily represent legal and professional fees related to the Distribution and transition-related costs as we transfer certain corporate functions from FNF. Transition and integration costs in 2016 represent costs associated with the eLynx and Motivity acquisitions and professional services related to the distribution of FNF's ownership interest in Black Knight.
Operating Income (Loss)
Consolidated Operating income was $262.5 million in 2017 compared to $232.8 million in 2016, an increase of $29.7 million, or 13%. The change in operating income (loss) is discussed further at the segment level below.

42


The following table sets forth operating income (loss) by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
424.1

 
$
381.6

Data and Analytics
16.8

 
17.7

Corporate and Other
(178.4
)
 
(166.5
)
Total
$
262.5

 
$
232.8

Software Solutions
Operating income was $424.1 million in 2017 compared to $381.6 million in 2016, an increase of $42.5 million, or 11%. Operating margin was 47.4% in 2017 compared to 44.6% in 2016. The increase in operating income is primarily due to revenue growth within servicing software and lower depreciation and amortization.
Data and Analytics
Operating income was $16.8 million in 2017 compared to $17.7 million in 2016, a decrease of $0.9 million. Operating margin was 10.4% in 2017 compared to 10.0% in 2016. The decrease in operating income is primarily due to incremental revenues excluding the Property Insight realignment, offset by higher depreciation and amortization and the effect of expenses associated with the data hub.
Corporate and Other
Operating loss was $178.4 million in 2017 compared to $166.5 million in 2016, an increase of $11.9 million, or 7%. The increase was primarily driven by higher equity-based compensation and legal and professional fees related to the Distribution, partially offset by lower incentive bonus accruals.
Interest Expense, Net
Consolidated Interest expense, net was $57.5 million in 2017 compared to $67.6 million in 2016, a decrease of $10.1 million, or 15%. The decrease is driven by interest savings from the Term B Loan repricing and debt refinancing.
Other Expense, Net
Consolidated Other expense, net was $12.6 million in 2017 compared to $6.4 million in 2016. The 2017 amount primarily includes the Senior Notes redemption, Term A Loan and Revolving Credit Facility refinancing and the Term B Loan repricing. The 2016 amount primarily includes legal fees associated with litigation matters.
Income Tax (Benefit) Expense
Consolidated Income tax (benefit) expense was $(61.8) million in 2017 compared to $25.8 million in 2016. Our effective tax rate was (32.1)% in 2017 compared to 16.2% in 2016. The change is primarily due to an adjustment of $110.9 million related to the revaluation of our net deferred income tax liability as a result of the Tax Reform Act. The effect of this adjustment on our 2017 effective tax rate was (57.6)%, partially offset by a higher effective tax for the period subsequent to the Distribution as we no longer have any noncontrolling interests.
Adjusted Revenues
Consolidated Adjusted Revenues were $1,056.1 million in 2017 compared to $1,033.3 million in 2016, an increase of $22.8 million, or 2%. The increase was driven by higher loan volumes on our core servicing software solution, price increases, higher transactional volumes and the eLynx and Motivity acquisitions, partially offset by the effect of the Property Insight realignment and lower Exchange volumes as a result of a decline in refinancing originations.
Adjusted EBITDA and Adjusted EBITDA Margin
Consolidated Adjusted EBITDA was $505.8 million in 2017 compared to $463.1 million in 2016, an increase of $42.7 million, or 9%. The changes in Adjusted EBITDA are discussed further at the segment level below.
Consolidated Adjusted EBITDA Margin was 47.9% in 2017 compared to 44.8% in 2016, an increase of 310 basis points. The changes in Adjusted EBITDA Margin are discussed further at the segment level below.

43


The following tables set forth Adjusted EBITDA (in millions) and Adjusted EBITDA Margin by segment for the periods presented:
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
523.0

 
$
487.8

Data and Analytics
31.9

 
26.5

Corporate and Other
(49.1
)
 
(51.2
)
Total
$
505.8

 
$
463.1

 
Year ended December 31,
 
2017
 
2016
Software Solutions
58.5
%
 
57.0
%
Data and Analytics
19.7
%
 
14.9
%
Corporate and Other
N/A

 
N/A

Total
47.9
%
 
44.8
%
Software Solutions
Adjusted EBITDA was $523.0 million in 2017 compared to $487.8 million in 2016, an increase of $35.2 million, or 7%, with an Adjusted EBITDA Margin of 58.5%, an increase of 150 basis points from the prior year. The Adjusted EBITDA Margin increase was primarily driven by incremental margins on revenue growth.
Data and Analytics
Adjusted EBITDA was $31.9 million in 2017 compared to $26.5 million in 2016, an increase of $5.4 million, or 20%, with an Adjusted EBITDA Margin of 19.7% in 2017 compared to 14.9% in 2016, an increase of 480 basis points from the prior year. The Adjusted EBITDA Margin increase was primarily due to the effect of the Property Insight realignment and incremental revenue growth, partially offset by costs associated with the data hub.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues
Consolidated Revenues were $1,026.0 million in 2016 compared to $930.7 million in 2015, an increase of $95.3 million, or 10%. The change in revenues is discussed further at the segment level below.
The following table sets forth revenues by segment for the periods presented (in millions):
 
Year ended December 31,
 
2016
 
2015
Software Solutions
$
855.8

 
$
765.8

Data and Analytics
177.5

 
174.3

Corporate and Other
(7.3
)
 
(9.4
)
Total
$
1,026.0

 
$
930.7

Software Solutions
Revenues were $855.8 million in 2016 compared to $765.8 million in 2015, an increase of $90.0 million, or 12%. Our servicing software business contributed $48.3 million of this increase, primarily driven by higher average loan volumes on our core servicing software solution, which increased 5.4% to 31.9 million average loans, price increases and new client wins. Our origination software business contributed $41.7 million of this increase, primarily driven by prior year client implementations, higher transaction volumes on the Exchange and revenues attributable to eLynx, partially offset by lower net professional services revenue.
Data and Analytics
Revenues were $177.5 million in 2016 compared to $174.3 million in 2015, an increase of $3.2 million, or 2%. The increase was primarily driven by the Motivity Solutions acquisition partially offset by lower upfront revenues from long-term strategic license deals.

44


Operating Expenses
Consolidated Operating expenses were $582.6 million in 2016 compared to $538.2 million in 2015, an increase of $44.4 million, or 8%. The changes in operating expenses are discussed further at the segment level below.
The following table sets forth operating expenses by segment for the periods presented (in millions):
 
Year ended December 31,
 
2016
 
2015
Software Solutions
$
368.0

 
$
341.4

Data and Analytics
151.0

 
145.5

Corporate and Other
63.6

 
51.3

Total
$
582.6

 
$
538.2

Software Solutions
Operating expenses were $368.0 million in 2016 compared to $341.4 million in 2015, an increase of $26.6 million, or 8%. In our origination software business, the increase was primarily driven by the addition of eLynx and lower capitalized software development and deferred implementation costs. Our servicing software business experienced a decrease in operating expenses, primarily driven by lower personnel costs.
Data and Analytics
Operating expenses were $151.0 million in 2016 compared to $145.5 million in 2015, an increase of $5.5 million, or 4%. The increase was primarily driven by the Motivity Solutions acquisition and higher data-related costs, which were partially offset by reductions in other operating expenses, primarily lower personnel costs.
Corporate and Other
Operating expenses were $63.6 million in 2016 compared to $51.3 million in 2015, an increase of $12.3 million, or 24%. The increase was primarily driven by higher incentive bonus accruals, higher compensation and employee-related costs as we expanded certain corporate functions in 2016 to support our continued growth and a full year of public company costs.
Depreciation and Amortization
Consolidated Depreciation and amortization was $208.3 million in 2016 compared to $194.3 million in 2015, an increase of $14.0 million, or 7%. The changes in depreciation and amortization are discussed further at the segment level below.
The following table sets forth depreciation and amortization by segment for the periods presented (in millions):
 
Year ended December 31,
 
2016
 
2015
Software Solutions
$
106.2

 
$
93.3

Data and Analytics
8.8

 
7.2

Corporate and Other
93.3

 
93.8

Total
$
208.3

 
$
194.3

Software Solutions
Depreciation and amortization was $106.2 million in 2016 compared to $93.3 million in 2015, an increase of $12.9 million, or 14%. The main drivers of this increase are the amortization of deferred contract costs relating to client implementations, including accelerated amortization of $4.1 million related to certain deferred implementation costs, and the amortization from new software development offset by lower amortization of customer relationship assets.
Data and Analytics
Depreciation and amortization was $8.8 million in 2016 compared to $7.2 million in 2015, an increase of $1.6 million, or 22%, primarily due to amortization from new software development.
Transition and Integration Costs
Consolidated Transition and integration costs were $2.3 million in 2016 compared to $8.0 million in 2015, a decrease of $5.7 million. Transition and integration costs for the year ended December 31, 2016 primarily represent costs associated with the eLynx and Motivity acquisitions and professional services related to the distribution of FNF's ownership interest in Black Knight.

45


Transition and integration costs during the year ended December 31, 2015 represent management fees paid to FNF and THL through May 25, 2015, prior to the IPO, and costs related to the IPO.
Operating Income (Loss)
Consolidated Operating income was $232.8 million in 2016 compared to $190.2 million in 2015, an increase of $42.6 million, or 22%. The change in operating income (loss) is discussed further at the segment level below.
The following table sets forth operating income (loss) by segment for the periods presented (in millions):
 
Year ended December 31,
 
2016
 
2015
Software Solutions
$
381.6

 
$
331.1

Data and Analytics
17.7

 
21.6

Corporate and Other
(166.5
)
 
(162.5
)
Total
$
232.8

 
$
190.2

Software Solutions
Operating income was $381.6 million in 2016 compared to $331.1 million in 2015, an increase of $50.5 million, or 15%. Operating margin was 44.6% in 2016 compared to 43.2% in 2015. The increases in operating income and operating margin are due to strong incremental margins on the revenue growth and the benefit of prior year cost actions that were partially offset by higher depreciation and amortization.
Data and Analytics
Operating income was $17.7 million in 2016 compared to $21.6 million in 2015, a decrease of $3.9 million. Operating margin was 10.0% in 2016 compared to 12.4% in 2015. The decrease is primarily due to the net impact of lower upfront revenues from long-term strategic license deals in the current year and higher depreciation and amortization.
Corporate and Other
Operating loss was $166.5 million in 2016 compared to $162.5 million in 2015, an increase of $4.0 million, or 2%. The increase was primarily driven by higher incentive bonus accruals, higher compensation and employee-related costs as we expanded certain corporate functions in 2016 to support our continued growth and a full year of public company costs, partially offset by lower Transition and integration costs in 2016.
Interest Expense, Net
Consolidated Interest expense, net was $67.6 million in 2016 compared to $89.8 million in 2015, a decrease of $22.2 million, or 25%. The decrease is attributable to the new credit facilities entered into during 2015, as well as lower debt outstanding following the IPO.
Other Expense, Net
Consolidated Other expense, net was $6.4 million in 2016 compared to $4.6 million in 2015, an increase of $1.8 million, or 39%. The increase is primarily driven by legal fees associated with litigation matters.
Income Tax Expense
Consolidated Income tax expense was $25.8 million in 2016 compared to $13.4 million in 2015, an increase of $12.4 million, or 93%. Our effective tax rate was 16.2% in 2016 compared to 14.0% in 2015. These rates are lower than the typical federal and state statutory rate because of the effect of our noncontrolling interests.
Adjusted Revenues
Consolidated Adjusted Revenues were $1,033.3 million in 2016 compared to $940.3 million in 2015, an increase of $93.0 million, or 10%. The increase was driven by higher loan volumes on our core servicing software solution, price increases, new client wins, higher transactional volumes and the eLynx and Motivity acquisitions, partially offset by lower net professional services revenue and upfront revenues from long-term strategic license deals.
Adjusted EBITDA and Adjusted EBITDA Margin
Consolidated Adjusted EBITDA was $463.1 million in 2016 compared to $413.5 million in 2015, an increase of $49.6 million, or 12%. The changes in Adjusted EBITDA are discussed further at the segment level below.

46


Consolidated Adjusted EBITDA Margin was 44.8% in 2016 compared to 44.0% in 2015, an increase of 80 basis points. The changes in Adjusted EBITDA Margin are discussed further at the segment level below.
The following tables set forth Adjusted EBITDA (in millions) and Adjusted EBITDA Margin by segment for the periods presented: