Black Knight Financial Services' (BKFS) CEO Tom Sanzone on Q2 2016 Results - Earnings Call Transcript

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Black Knight Financial Services (NYSE:BKFS)

Q2 2016 Results Earnings Conference Call

July 20, 2016, 05:00 PM ET

Executives

Bryan Hipsher - SVP, Finance

Bill Foley - Executive Chairman

Tom Sanzone - President and CEO

Kirk Larsen - CFO

Analysts

Tien-Tsin Huang - JPMorgan

Sara Gubins - Bank of America Merrill Lynch

Jason Deleeuw - Piper Jaffray

Bill Warmington - Wells Fargo Securities, LLC

Andrew Jeffrey - SunTrust Robinson Humphrey

John Campbell - Stephens, Inc.

Bose George - Keefe, Bruyette & Woods

Geoffrey Dunn - Dowling & Partners Securities, LLC

James Schneider - Goldman Sachs & Co.

Glenn Greene - Oppenheimer

Presentation

Operator

Greetings and welcome to the Black Knight Financial Services Second Quarter 2016 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I would now like to turn the conference over to our host, Bryan Hipsher, Senior Vice President of Finance at Black Knight. Please go ahead.

Bryan Hipsher

Good afternoon everyone and thank you for joining us for the Black Knight Financial Services second quarter 2016 earnings conference call. Joining me today are Executive Chairman, Bill Foley; President and CEO, Tom Sanzone; and Chief Financial Officer, Kirk Larsen.

We'll begin with a brief overview from Bill. Tom will then provide an update on second quarter accomplishments and the execution of our growth strategy. And Kirk will finish with the review of financial highlights and our updated outlook for 2016. We'll then open up the call for your questions.

This conference call includes forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts included statements about our expectations, hopes, intentions, or strategies regarding the future are forward-looking statements.

Forward-looking statements are based on management's belief as well as assumptions made by in information currently available to management. Because such statements are based on expectations as to future financial and operating results are not statements of fact, actual results may differ materially from those projected.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise. The risks and uncertainties that forward-looking statements are subject to include but are not limited to the risks and other factors detailed in our press release issued earlier today, and in the statement regarding forward-looking information, risk factors, and other sections of our Form 10-K and other filings with the SEC.

Today’s remarks will also include references to non-GAAP and pro-forma financial measures in order to provide more meaningful comparisons between the periods presented.

These are important financial performance measures for Black Knight, but are not financial measures as defined by GAAP. Reconciliations between non-GAAP and pro forma financial information to the GAAP financial information are provided in the attachments to the press release and in the appendix of the supplemental slide presentation.

This conference call will be available for replay via webcast through Black Knight’s Investor Relations website at investor.bkfs.com. It will also be available through telephone replay beginning at 8:00 PM Eastern Time today through July 27, 2016. The replay number is 877-870-5176 or 858-384-5517. And the access code is 13639847.

I’ll now turn the call over to Bill.

Bill Foley

Thanks, Bryan. The second quarter for Black Knight was nothing short of exceptional. Not only did we continue to deliver strong performance including adjusted revenue growth of 9.7%, adjusted EBITDA growth of 14.1% and adjusted EBITDA margin of 45.2%, a 170 basis point expansion compared to the second quarter of last year, we also signed the third-largest mortgage servicer in the United States under our LoanSphere MSP platform.

In fact Bank of America win solidifies our servicing technology the platform of choice with the top lenders in the nation and means that MSP will be used by each of the top three servicers to combine their count from nearly the third of all active first mortgages in the country.

In addition to this significant servicing technology win, our origination technology continued to land top two few lenders in Fifth Third and PNC. I couldn’t be more pleased with the management team's performance and I want to extend a special thanks to the entire Black Knight staff for their tireless efforts in achieving these terrific accomplishments.

I'll now turn the call over to Tom who will provide some additional color on these and other wins, our recent acquisitions, and areas where we're delivering on innovating solutions.

Tom Sanzone

Thank you, Bill. Good afternoon and thank you for joining us for Black Knight second quarter earnings conference call. Since becoming a publically traded company in May 2015, we have and continue to successfully execute on our growth strategies and make great advancements that move the needle for our company and our clients.

On the call today I will discuss some of these exciting achievements which we have accomplished despite a challenging global economic environment. But before I begin talking about our accomplishments, I want to remind you that Black Knight's mission is to be the premier provider of technology, data, and analytics to the mortgage industry.

The way we're achieving this is by focusing all of our products and services specifically on solving our client's two greatest challenges, which are managing and mitigating risk and improving efficient and profitability. We're lased-focused on helping our clients solve these two challenges and that is why we believe we are winning in the marketplace.

Now, let me talk about some of these wins. Without a doubt one of our most significant achievements was our announcement that Bank of America signed an agreement to use our LoanSphere MSP servicing system to service first and second mortgages.

While the terms of the agreement are confidential, this is an important deal and one that the investment community has been asking about for some time. We're delighted to welcome Bank of America back onto our MSP platform.

This is a prime example of how we're executing on the growth strategy to further sell our solutions to existing clients. Services have realized the value in using a single platform to support both first and second mortgages and this trend is now gaining momentum in the originations space.

As lenders look for ways to enhance efficiencies and manage risk, as a result of our ongoing investments, Black Knight is now well-positioned to support first and second mortgages from originations through servicing.

Fifth Third Bank, a top 50 lender signed an agreement in the second quarter to implement the full suite of Black Knight loan origination solutions to originate both first and second mortgages.

After the conversion, Fifth Third will use LoanSphere Empower, LendingSpace, the Exchange and Quality Insight. Additionally, on our last call, we announced that PNC signed an agreement to use Empower to also consolidate its residential lending technology onto one integrated platform.

During the second quarter, True Home Mortgage, a credit union owned full-service mortgage company signed an agreement to use MSP. We also signed another log-term strategic license deal through which we're offering our comprehensive real estate data sets and analytics to major real estate market participants. All of these deals are examples of how we're driving long-term growth for our shareholders.

In the second quarter, we also demonstrated the execution of our growth strategy to selectively pursue strategic acquisitions. When looking at acquisition targets, we look for product focus acquisitions that broaden our client base and deepen our product and service offerings.

We also look for companies that are growing faster or have the ability to grow faster than our overall growth rate and have the ability to meaningfully expand margins by leveraging our entire franchise.

In support of this strategy in May, we acquired eLynx, a leading provider of technology that electronically captures and manages documents throughout the origination process and provides e-sign, e-close, and e-delivery capabilities.

By integrating with our existing technologies, Black Knight is now positioned to support the whole e-mortgage origination process which we believe will become a growing trend in the industry and further support enhanced productivity and risk mitigation for our clients. It also enables us to seamlessly add solutions to our already comprehensive and proven RealEC technology solutions suite.

In June, we acquired Motivity Solutions, a leading provider of customized mortgage business intelligence analytics. Motivity will provide Black Knight clients with business intelligence capabilities that include powerful real-time dashboards, key performance indicators, and interactive reporting for greater operational insights to achieve peak performance and reduce operational risk.

A key benefit of this acquisition is that Motivity has an infrastructure that will help us accelerate our delivery of insights from the LoanSphere data hub which are key differentiators for Black Knight's Data and Analytics business.

Another growth strategy is to innovate and introduce new solutions. As part of our approach to product development, we've partnered with leading clients to develop new offerings.

This approach results in our clients having a vested interest in the successful development of the solutions and in becoming early adopters. A couple of examples of these innovative solutions include, loan care active insight, the data hub, and claims for services.

As I have explained on previous calls, the data hub links each client's servicing and origination systems data with Black Knight's vast public records. I'm pleased to report that we recently signed our first agreement with a top financial institution to leverage the data hub and we have a strong pipeline and continue to be excited about this product.

We also recently introduced a new claims product which we developed in conjunction with a top-five servicer. Servicers can use this product to automate and manage the claims process and help recoup costs more quickly and efficiently.

Two servicers are currently using this solution including the servicer who was involved in the development. And we continue to speak with other clients about this enhanced functionality.

We're very excited about all of the progress that has been made since Black Knight became a publicly traded company just over a year ago, but, especially for the achievements we have made in the second quarter.

In addition to implementing our new clients and ensuring the successful integration of our recent acquisitions, we continue to be focused on developing new solutions and expanding our client base.

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

Kirk Larsen

Thank you, Tom, and good afternoon, everyone. Today I'm going to discuss our second quarter financial results and our updated outlook for 2016. As Bill mentioned earlier, Black Knight delivered strong results during the second quarter driven by continued growth in our origination technology and servicing technology businesses.

Turning to slide three, on a GAAP basis, revenues increased 10.1% to $255.5 million in the second quarter. Net earnings attributable to Black Knight Financial Services Inc. were $11.4 million compared to $0.3 million in the prior year quarter. Net earnings per share attributable to Black Knight Financial Services Inc. was $0.17 per diluted share compared to $0.00 per diluted share in the prior year.

For the first half of the year, GAAP revenues increased 8.3% to $497.4 million and net earnings attributable to Black Knight Financial Services Inc. were $22.8 million compared to $0.3 million in the prior year. Net earnings per share attributable to Black Knight Financial Services Inc., was $0.34 per diluted share compared to $0.00 per diluted share in the prior year.

Turning to slide four, I'll now discuss our adjusted results. During the second quarter, we generated $257.5 million in adjusted revenues, an increase of 9.7% compared to the prior year quarter. Adjusted EBITDA increased 14.1% to $116.5 million compared to $102.1 million in the prior year quarter.

Adjusted EBITDA margin was 45.2% in the current year compared to 43.5% in the prior year quarter, an increase of 170 basis points. This significant market expansion is further evidence of our high incremental margins on new revenue and the benefit of disciplined cost management.

Adjusted net earnings from continuing operations was $44.7 million, an increase of 21.5% compared to pro forma adjusted net earnings from continuing operations of $36.8 million in the second quarter of last year.

Adjusted net earnings per share from continuing operations for the second quarter was $0.29, an increase of 20.8% compared to pro forma adjusted net earnings per share from continuing operations of $0.24 in the second quarter last year.

Depreciation and amortization expense in the second quarter was $49.2 million on a GAAP basis compared to $48.8 in the second quarter last year. On an adjusted basis, excluding the incremental depreciation and amortization resulting from purchase accounting, depreciation and amortization increased $2.6 million to $28.9 million during the quarter. Capital expenditures for the second quarter totaled $22.9 million.

For the first half of 2016, adjusted revenues were $501.7 million, an increase of 8.1% compared to the prior year. Adjusted EBITDA was $226.6 million, an increase of 13.1% compared to the prior year. Adjusted EBITDA margin was 45.2%, an increase of 210 basis points compared to the prior year. And finally, CapEx was $39.5 million.

Turning now to slide five, I'll discuss our segment results. In the second quarter, adjusted revenues for the technology segment increased 11.6% to $213.2 million. Our servicing technology business had adjusted revenue growth of 7.3% driven by strong loan growth on our servicing platform, [Indiscernible] to existing clients and price increases.

In our origination technology business, adjusted revenues growth of 34.2% was driven by prior year client implementations, approximately $4 million related to eLynx acquisition and higher transaction volumes that more than offset the absence of client's termination related revenues which totaled $2.3 million in the prior year quarter.

Adjusted EBITDA increased 16.6% to $122.9 million while adjusted EBITDA margin was 57.6%, an increase of 240 basis points compared to the prior year quarter driven by strong incremental margins on the underlying revenue growth and disciplined cost management.

First half revenues in the technology segment increased 10.6% to $415.6 million and adjusted EBITDA increased 15.8% to $238.3 million. Adjusted EBITDA margin was 57.3% an increase of 250 basis points compared to the prior year.

Turning to slide six. In the second quarter, Data and Analytics adjusted revenues were $44.3 million compared to $43.7 million in the prior year quarter. Adjusted EBITDA was $6.8 million compared to $6.4 million. Adjusted EBITDA in the second quarter of 2016 included $1.1 million of expense associated with legal matters.

Adjusted EBITDA margin was 15.3% compared to 14.6% in the prior year quarter. Adjusted revenues for the first half were $86.1 million compared to $88.5 million and adjusted EBITDA was $13.6 million compared to $14.2 million. Adjusted EBITDA margin was 15.8% compared to 16.0% in the prior year.

Adjusted corporate expenses for the second quarter, excluding depreciation and amortization and interest expense, increased $3.5 million from the prior year quarter. Adjusted corporate expenses for the first half were $5.5 million higher than the prior year period. The increase for both the quarter and the first half was driven primarily by high incentive loans accruals and public company costs.

Turning to slide seven, I'll walk through our capital structure. At the end of June, we had cash and cash equivalents of $28.2. Total debt principal, as of June 30th, was approximately $1.6 billion. Our growth and net-leverage ratios were 3.7 times.

During the second quarter, we had net incremental revolver borrowings of $30 million due to the eLynx and Motility acquisitions. As a result, we have total revolver borrowings outstanding of $80 million and $320 million of borrowing capacity remaining under our revolver.

Turning now to slide eight, we're updating our outlook for the full-year 2016 including the effect of our recent acquisitions. Adjusted revenue growth is expected to be in a range of 8% to 10%. Adjusted EBITDA growth is expected to be in a range of 10% to 12% and adjusted EPS is expected to be in a range of $1.11 to $1.15.

Additional modeling details underlying our outlook are as follows. We currently expect interest expense of approximately $70 million; adjusted depreciation and amortization expense of approximately $115 million; a fully distributed effective tax rate of approximately 37%; diluted weighted average shares outstanding 153 million; and finally, CapEx of $80 million to $90 million.

Additional considerations as you think about the second half are, while we had a significant implementation pipeline from previously sold client deals that will drive long-term recurring revenues, the go live dates for those implementations are generally in 2017 and beyond in some cases.

As a result, we expect the third and fourth quarters to look a lot like the second quarter, adjusted to include eLynx and Motivity for the full respective period and adjusting for typical seasonality in the fourth quarter. Overall, we're very pleased with our second quarter results and look forward to the second half of the year.

Operator, please open the lines for Q&A.

Question-and-Answer Session

Operator

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]

Our first question comes from Tien-Tsin Huang from JPMorgan.

Tien-Tsin Huang

Hi, thanks. Good afternoon. Good results here. I just wanted to ask about the change in the guidance here. Is that primarily driven by the two acquisitions plus the implementation costs of the wins you called out, any other big contributions to the change?

Kirk Larsen

I'd say that the most significant contributor would be the acquisition Tien-Tsin. The implementation costs, as you know while we go through an implementation, both the revenue related to the implementation, because we do get paid to those. We defer that during the implementation and then recognize it after we go live. And then the upfront cost for the implementation, we also defer those and those get recognized after we go live. So, the deals that we're doing, you'll see the impact in the cash flow statement, both the in and out, in deferred revenue and deferred implementation cost, but it won't be a P&L effect.

Tien-Tsin Huang

Understood. And I know I ask this a lot in earnings calls, but just given all of these implementations, should we expect maybe a little bit of a slowdown in terms of new bookings in the second half or is the pipeline still quite strong there, you'll still see some deals in the late stages?

Tom Sanzone

Hi Tien-Tsin, it's Tom.

Tien-Tsin Huang

Hey Tom.

Tom Sanzone

We see a very robust pipeline across the technology segments and even in Data and Analytics sense from the introduction of our new data help product and interest in that product. So, we see very strong interest in our businesses.

Tien-Tsin Huang

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Sara Gubins from Bank of America.

Sara Gubins

Hi. Thanks. Good afternoon. Given all of the wins that you've had recently I was hoping to get a little bit more color around the timing of when you think this might go into effect?

And I know we're talking about 2017, maybe a little bit early to ask, but could you help us think about how you think maybe in 2017 and into 2018 about the timing of the JPMorgan HELOC win, PNC, the HELOC origination in Fifth Third and the BofA business?

Bill Foley

The best way to really think about it and we'll obviously give guidance at the end of the year for 2017, there's many implementations going on at once. Obviously we know what dates they are scheduled to be delivered and there's always give and take in those dates as well.

If you look at the sole pipeline now we have right now, there will be significant deliveries and 2017, 2018, and potentially 2019. So, we have very large deals here that are going to be implemented over the next two to three years.

And so the best say that we can guide you through it would be we change the guidance this year and then we'll give guidance in 2017 based on what the implementation schedule looks like at that point and any additional business that happens in the second half of the year.

Sara Gubins

Okay. Thanks. Within the technology segment, how much did the Ditech, Green Tree revenue add sequentially? Was that debenture already as a sequential move-up?

Kirk Larsen

No, I would say it was a part of it and certainly it was a large deal and you could see the servicing technology revenue growth accelerate from Q1 to Q2 on a year-over-year basis. So, it was a meaningful driver of that sequentially, but it wasn’t the only thing.

Sara Gubins

Okay, great. Thanks. And then just last question. Could you help us think about Data and Analytics margin expectations over time, particularly in the back half, are there platform shutdowns happening that might help you see margin expansion?

Bill Foley

The way I would think about, we certainly -- our targets are the same. We will be very focused on increasing the margins in Data and Analytics both through growth and through increasing efficiency. It isn’t something that I think is going to happen overnight. It's a bit of a journey. So, I think it's going to be -- we'll be seeing it over the next couple of years. There are no big bang cost save initiatives that will benefit in the next quarter or two. So, I think it's more of a 2017, 2018 story.

Sara Gubins

Okay. Thank you.

Operator

Thank you. Our next question comes from Jason Deleeuw from Piper Jaffray.

Jason Deleeuw

Thank you. Good evening. Good work on the quarter. On the guidance range, you increased the guidance but the range is still the two percentage points and we're about halfway through the year. So, any thoughts that you could help us on in terms of what could drive some variability within the guidance range?

Kirk Larsen

What will drive variability in the guidance range is any sell and deliver revenue that's last for the course of the year. You also have seen -- while you know that we've spoken about it before that we are not a market origination, volume-driven business, certainly there has been a bit of a benefit from that and so really the question there is at least on the margin, what benefit that will be or will there be, how long will rates be low origination, volumes elevated.

And then there's the other element of professional services Jason and really what the effect those have and in fact what, in some cases, which project their folks are working on because if they are working on an implementation professional services, those get deferred, which means you won't see the revenue this year, you'll see in the future period versus working on a different client where they are fully implemented and you'll able to see the professional services revenue in years.

It's really -- those are the variables. The reason why we kept -- in part kept the guidance range similar from top to bottom was just because I don't really want to get into quarterly guidance. And so, admittedly there's only half year left, but those are the driver that that could move it from -- within the range.

Jason Deleeuw

Okay. Thanks for that. And then the next one is -- you guys talked about the opportunity to convert servicing technology customers, their first-liens and also try to get their second-lien business and it sounds like there's another similar opportunity for the origination technology side.

When we think about that, over the next couple of years, like how big of an opportunity for servicing and origination getting the second-liens also, how big of an opportunity is that and like a driver of the organic growth profile? How should we be thinking about that over the next couple of years?

Bill Foley

Yeah. What we talked about in the past was that 16, 17 outstanding HELOCs out there. Very -- not too far ago we had about 6% maybe of that market share, we have probably implementing for next year get us around 17% and then if you look at the eventual, like it be a day you'd obviously go into the 20% plus range.

So, we look at that as a big opportunity for us, let's say 17 million. We believe that we could compete to get similar market shares that we have in MSP. So, there's that opportunity from where we are now and like 17% to getting to an MSP which is 16% plus.

On the origination side, I don't know that we fully have scoped that. Right now we're just beginning because the emphasis on consolidating that activity on to same origination platform is recent occurrence as well.

And so right now our market share is very small, but we will certainly be pushing hard and capturing as much of that -- I mean our goal in origination platforms is similar to an MSPs to really be the dominant player in that space for the top-tier in the majority of the volume. So, that would be our strategy on the front end as well with HELOC.

Jason Deleeuw

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Bill Warmington from Wells Fargo.

Bill Warmington

Good afternoon everyone. And congratulations on the Q2 results and the wins. So, a question for you on Fifth Third Bank, was there a five-serve unified pro client and if so, what drove that change, why now?

Bill Foley

Bill, I think that as I've mentioned to you guys on prior calls, very soon we're going to have the next wave of major change with Honda and the like probably in 2018 and beyond. And that is a significant change to the origination platform which -- will require us a lot of investment and I think that we all are certainly prepared and have the capital to make those investments. And that is the strategic advantage for us.

Plus we have capabilities now that are increasing very quickly with eLynx as an example, with Motivity. We just have a very compelling platform. We're prepared and have proven ourselves to be capable of delivering on these timelines for major regulatory change. Clients who have the opportunity to look at the platform and compare it to what they have and make a decision, we have a very compelling case for that.

Bill Warmington

Okay. So, where does Fifth Third rank in terms of their share of first-lien and second-lien, just to give us a sense in terms of the size?

Kirk Larsen

On the MSP side?

Bill Warmington

Yes.

Kirk Larsen

On the MSP side I don't have their second-lien?

Bill Foley

No, no, you're asking about the -- on the front-end, right because -- no?

Bill Warmington

Well, I'm trying to ask or get to a revised market share for you guys on the first-lien and the second-lien loan side given the win?

Kirk Larsen

On MSP -- are you saying our MSP or on origination?

Bill Warmington

On MSP?

Kirk Larsen

So, just to be clear they signed up to our origination technology suite. They didn’t sign up for servicing technology.

Tom Sanzone

They are on -- they are now on MSP.

Bill Warmington

Got it. Got it. So, that's still a potential opportunity?

Bill Foley

Well, we would consider that as an opportunity.

Bill Warmington

Got it. And so then -- I wanted to just double check in terms of the -- get an update in terms of the market share, you had mentioned that with BOA you have plus 20% on the second-lien side. I want to just double check in terms of where you were coming in on the first and second-liens. It would seem like about 65% on the first-lien and about 25%, 26% on the second-lien, I just wanted to run this by you.

Kirk Larsen

We can't provide loans counts and ultimately, it's going to be depend on where the loan counts are when they convert. But if you look at where we are today pre-Bank of America conversion, we're at 62% on the first-lien side and we're still at 6% on the second-lien side because of Chase and PNC are in implementation. So, when they are done, we'll be at 17.

But, I think you'd have to look at Bank of America's public filings to and see where they are, where the loans are and you can perhaps -- you have to predict the future to see where they are going to be when they convert.

Bill Warmington

Got it. And then last question on the data hub and the wins there, how should we think about the incremental revenue coming from a data hub win or contract, how much are we talking and maybe -- I don't know the best way to do it in dollars frame versus MSP or originations win.

Bill Foley

Well, I mean everyone -- the way the data hub will be priced, it's going to depend on similar to other products on the size of the client. And so there will be a base pricing to get the base capabilities of the data hub and then there's going to be peers of capabilities, like standard equipment on the car and then options, right.

So, there will be a price for the standard implementation and capabilities and then it's kind of a menu of things you can buy in addition to that depending on the nature of the client and what they are trying to achieve.

So, I can't give you, at the moment, an average number because it could vary significantly if you're a top three versus number 40 servicer or originator. So, it's going to be a spectrum of pricing and it's going to be similar to other products, there will be a base price and then different capabilities by loan count, by volume similar to way we priced other products.

Bill Warmington

Got it. Thank you very much.

Operator

Thank you. Our next question comes from Andrew Jeffrey from SunTrust.

Andrew Jeffrey

Hey guys thanks for taking the question.

Tom Sanzone

Hey Andrew.

Andrew Jeffrey

When I look at the growth in servicing technology, Kirk, can you break down in MSP how much of that's coming from first-lien versus specialty servicing? Has the -- I guess I'm wondering if the first growth and first-lien has changed at all in the last -- this quarter versus last quarter?

Kirk Larsen

Yeah. So, the growth -- the way to think about servicing technology is there are two components, there's core servicing and then there's specialty servicing. Specialty servicing is doing fine, we're adding products, but they still have a good of market headwind and so that business is pretty -- it's flattish. And so the growth that you see on the -- in servicing technology, Andrew, is really being driven by core servicing.

And for example, I think I gave this last quarter, but loans on MSP which in this quarter is really a first-lien story are up almost 8%. And then when you peck on top of that, the price increases that we get that added a 0.5 or so to the total company growth it's a little over 2% in servicing, those are really -- that's the growth drivers and the accelerated growth in loan counts on MSP -- MSP is certainly a chunk of that that's Ditech, but there's also growth in other clients as well. So, within servicing technology, it's definitely MSP story and it's definitely a combination of loan count and price.

Bill Foley

Yeah. And as we talked about before, just historically we've seen organic growth in loans on the system from 300,000 plus just to various different factors and the other thing is we have the call is that kicking in January, but also as we renegotiate deals as contracts come up, we also can have a pricing change there as well. So, those are other components.

Andrew Jeffrey

Okay. And with regard to -- I'm just looking at slide five, you talk about in origination technology certainly new implementations, you also talk about transaction volume. Is that -- Tom, is that referring to the renegotiations you just mentioned where by contracts might grow or is there something else? I always think about Black Knight as not having one real exposure -- material exposure one way or the other to volume?

Tom Sanzone

Andrew, the way to think about it, you are right. If you think about the fact that the majority of our revenue is MSP and that's loan count subject to minimum very, very steady, no real effect from the origination market.

You then kind of look through at the other components. You take origination technology break it into two components, LOS business which is Empower and LendingSpace and then really see. The LOS side is a business where contracts volume related are subject to minimum and what has happened with the market with originations accelerating, there's a little bit of benefit, but quite honestly most of those contracts are right around the minimum.

So it wasn’t very pronounced. Where we did see the volumes increase and really there were two reasons was on the RealEC Exchange. So, that's where you will see the uptick from the refi volumes which is where the elevations been off late as rates have been low.

And then also we continue to sell products, so we're client delivering a new products through the Exchange, we're ordering a new product through the Exchange whether its appraisal or title or other things. And so we continue to sell to expand that share of wallet within the lenders. So, when we talk about transition bonds, it really was more focused on the Exchange and it really was sort of discussing those two components.

Andrew Jeffrey

Okay. So, if we--

Kirk Larsen

To your comment, you're right, that I would say was on the margin as opposed to a material driver in the quarter, but we thought it was worth noting in light of the fact of everybody can see what's happening in origination these days.

Andrew Jeffrey

Okay. So, the implication would be if we continue to see elevated originations, I don't think anybody will be looking for mortgage rates to do what they have done this year. That could be a nice tailwind. Is that contemplated in guidance or might that be an increment?

Kirk Larsen

I would say that we certainly can see how a little bit week-to-week, month-to-month cycle of things, but certainly we're not making a call that rates will stay this low and refi will be elevated through the rest of the year or into next.

Andrew Jeffrey

Okay, all right. Thank you.

Operator

Our next question comes from John Campbell from Stephens Inc.

John Campbell

Hey guys, congrats on a great quarter.

Tom Sanzone

Thanks John.

John Campbell

Just back to the origination business. I mean you guys put up really strong -- I think it was 34% year-over-year growth this quarter. It looks like 3Q -- it does look like the mortgage market might be up sequentially.

I think the MBA now for the full year is going for like a $17.4 trillion market or so. You guys are going to get the lift from eLynx and the Motivity acquisition as well. So, is there any reason why you guys shouldn’t expect that growth rate to be above the 2Q growth rate for 3Q?

Tom Sanzone

It's -- well, certainly in 3Q, we'll have a full quarter of eLynx. So, that would be an element that would -- where it would be higher. There could be volumes stay at elevated levels on the refi side to really see would benefit from that.

But, as you look forward beyond the third quarter, you think about the fourth quarter, if you go back and look at our results for the fourth quarter last year, the business grew 59% and that was -- this fourth quarter will annualize the go live to Closing Insight and some other really strong fourth quarter in origination technology last year. So, there's a comparison that you need to contemplate if you think about everything about the fourth quarter.

John Campbell

Okay, that's helpful. And then can you break out what the contribution was for eLynx or just maybe an organic growth rate for origination business maybe just in 3 -- in 2Q?

Kirk Larsen

It was $4 million in Q2.

John Campbell

And then any term fees in the quarter?

Kirk Larsen

No term fees.

John Campbell

Okay, got it. Thanks guys.

Operator

Thank you. Our next question comes from Bose George from KBW.

Chas Tyson

Hey guys. This is actually Chas Tyson on for Bose. I wanted to follow-up on some of the data hub questions. You said you had one sign up. How many are more I guess are in testing right now? When do you kind of expect to rollout the product fully? And is there a way to size the revenue potentials of kind of the total products?

Bill Foley

Good question. So, I think the important aspect of this product is its been in R&D and then we went into pilot and then we adopted a partnership with a few strategic clients who done business with us for a long time and we’ve gone to a point now where it is reduction nice.

I would say that it has got the base capabilities with a lot of upside onto it. As I mentioned in the opening remarks, one of the things that we're doing very quickly is we're integrating Motivity on top of the data hub. And we're going to use that as a major interface across our platforms. And that's still some work to come, although it's not going to take long.

So, we've got to the production product. We got the sale. I mean my view is everything becomes real when someone is willing to buy it. And we had a nice sale recently and we're in dialogue -- probably I would say mature dialogue with probably three or four other potential clients right now.

And this is the product that -- another thing I'm excited about is this is little different than our other business. This is a type of product that could be delivered a lot quicker than the normal implementation cycle on LOS platform or MSP as an example.

So, I would hope to get this product out the door in a matter of months, right, and get in production with the major client as we're discussing it with others. And I think the product has significant upside. I don't want to give any numbers right now because we're in the early stages. But just look at it this way, we have a product that delivers significant capabilities to originators and servicers. We've talked about the enterprise concept, right, so now we have the data hub with all these capability on top of it that originators and servicers want. We sold it to one client who is our servicing client and we have 75 other ones, all right. And so we sold it to one client that has an origination business and we have 30 plus others that we could plug into.

So, if you think about it we have a ready-made audience for the product that we can immediately want this productionized and in place, go out and sell pretty aggressively.

And the other thing that's really exciting about the product is when we talk to clients and we look at -- once again going back to the solving their biggest problem about managing risk and getting more efficient and more profitable.

When we look at base cases of what clients spend on data and data management in their operations, it's a very, very big significant number of all different types of systems that put together, try and do reporting and all that.

The data hub similar to an MSP or a loan origination platform will have a very compelling business case not only on a capabilities that it will deliver, but the expense potential that you could take out of the client's environment and do it much more efficiently.

So, this one again goes back to the same philosophy, solve the client's two biggest problems and it's really getting more efficient and more capability. As far as what it eventually will be, I can't give you an answer on that now. I'll tell you that the deals will be significant deals and that we have a very strong client base that should find this a very attractive product.

Chas Tyson

Okay. And can you talk -- maybe just a little bit about the actual products, how it's being revised to the client that you signed up with, is it -- I know in the past when you described it, you've talked about lead generation capabilities, are they getting provided with kind of your standard property data and analytics that you typically find in the data package. And when you signed up with them, did you replace their existing data analytics or latter?

Bill Foley

That's good, you got it. Nice job. So, yes, the nice thing about the product is remember it's got the client -- well let's assume you're an enterprise client, it's got your servicing and all data, it has also got your origination data and then we put our public data access into the data hub as well as things -- like other data sets.

Then we build on top of that -- we've called that insights right now, we have Motivity, we're going to rationalize this whole strategy pretty soon but, basically the insights that sit on top of the data hub are in three categories. One revenue retention and revenue growth; two would be operational excellence and efficiency; and three would be risk and compliance.

So, there's a set of capabilities in those three categories right that are part of the package and we would deliver that to the client. So, that type of capability. As far as your point about the public data assets, they will buy the licenses for those products and when the timing is right they will use that product as their internal product. So, it will display to other competitors over time.

Chas Tyson

Okay, but not right away?

Bill Foley

Well, the timing of it really comes down to what the data contract for the other product, right. So when does the contract come up, and also they probably build some infrastructure around that product that needs to be put in around the data hub, right. So, there's some work -- sometimes there's some work to do, that doesn’t make it immediate and other times they might have a one year contract and they got nine months to go.

Chas Tyson

Okay, makes sense. And then last question just wanted to ask on your capital structure and your debt, I mean I think the opportunity to refinance maybe is a ways off, but when you do if you were to think about that opportunity are there any tax considerations that you have to think about for your shareholders or does it not affect them with any--?

Tom Sanzone

Refinancing -- there is no tax implications in refinancing existing debt.

Chas Tyson

Okay. I just wanted to make sure. Thank you.

Operator

Thank you. Our next question comes from Geoffrey Dunn from Dowling & Partners.

Geoffrey Dunn

Thanks. Good afternoon. You made the comment that the D&A margin improvement more of a 17 or 18 story, how important is the Motivity interface to that improvement? It sounds like this is really going to enhance your deliver and front end capability, so can you just comment to that?

Tom Sanzone

Yeah, I mean our strategy in Data and Analytics is which we've been talking about for a while is similar to everything we've talked about, about cross signs, the enterprise at Black Knight, which has been proven successful in the origination business, it's now been proven successful in data because we crossed data products into new MSP deals and new origination deals, right.

So, what our strategy around D&A is to really change the game which is to create this product with data that is operational data, servicing data, origination data, with these public assets and create capabilities that we will sell that frankly Black Knight is perfectly positioned to deliver those capabilities.

So, that's our strategy. Now, it took us time to build that product and now we're going to market with it into our franchise in origination and servicing set of clients. And we believe that will be source of significant revenue over time and have a nice margin profile to it.

So, that's our strategy. It's going to take time to do it and the best thing is we got a major client that buys the product and I think we're off to the races from here.

Geoffrey Dunn

Okay. Thank you.

Tom Sanzone

So, as we do additional data hub sales that we'll drive revenue, there will be those -- contribution margin on those will be where we like it to be and it's just a matter of how many we sell over what time.

Geoffrey Dunn

So, this is more -- it's more about building the operating leverage, not gaining efficiencies, per se?

Kirk Larsen

Yes, that's right, Geoff.

Geoffrey Dunn

Okay, great.

Kirk Larsen

Well, I should say what Tom was just talking about is about driving revenue growth at high incremental margins. There is a secondary aspect where we will, as I said before, continue to seek to be more efficient, that's not a Motivity story per se, that's something ongoing process.

Geoffrey Dunn

Right. Okay. Thank you.

Operator

Thank you. Our next question comes from Jim Schneider from Goldman Sachs.

Jim Schneider

Good afternoon. Thanks for taking my question. Regarding the pickup and originations driven by the rate volatility, understanding it's pretty tough since we haven’t seen a lot of periods like this before, but when we have seen kind of periods rate volatility which has driven a short-term spike in originations.

Have you looked and done a data studies on past cycles, how long the spurt of originations lasted, is it kind of a two quarter thing and then you're done or can sometimes last longer than that?

Kirk Larsen

It really depends. Part of the challenge is we haven’t had a business in the current construct to go back and look at what it look like in other cycles. But, it really is going to be very rate dependent and it's going to be -- but I think even with that, I think as I said a couple of times, it's really going to be on the margin as opposed to a multiple point of revenue growth for the company type of driver. But it's hard to predict. We haven’t been in a cycle like this with this business construct.

Jim Schneider

I understand. And then just a quick timing question given the PNC win you announced on last quarter's call, is there a chance that you start to recognize revenues from that win within 2016 or is that fully a 2017 event?

Kirk Larsen

That's a 2017 event. If you think about when we come into a given planning period, into a beginning of the year, we give you all guidance, really what's happening in the year is we know the price increases, we know the deals that are already implemented that annualized, we know the deals that are scheduled implementation dates and then there are some sell and deliver revenue that also come.

During the year, especially when you get into the -- pass the first quarter or so, even in the first quarter, you think about the complexity and duration of a difficult implementation, it's going to push it very late into the year if not more generally into the following year. That's how it characterizes the couple of deals that we've announced, a few deals we've announced.

Jim Schneider

Fine. And then, regarding Data and Analytics, does the current guidance contemplate in acceleration in Data and Analytics growth in the back half of the year excluding the Motivity contribution or not?

Kirk Larsen

It looks a lot like -- I'd its relatively consistent, but it depends on where we end up in the range. If we sign another -- we sign more long-term strategic license deals, then that would be stronger performance, otherwise, it's going to be -- it will look relatively similar.

Jim Schneider

Great. Thank you.

Operator

Thank you. Our next question comes from Glenn Greene from Oppenheimer.

Glenn Greene

Thank you. Good afternoon. Nice results and signings. I guess the question, I know you want to protect your clients because you have got a lot of high-profile clients, Bank of America, Fifth Third, PNC, et cetera. But is there a way to sort of size backlog of conversion and I realize that's going to be a two or three year conversion cycle, but maybe at a high level frame it relative to what it was a year ago, what it might be relative to a size of your revenue base which is now over $1 billion. Any way we can kind of get some help on that?

Kirk Larsen

I would say not quantitatively, but certainly qualitatively. I -- the implementation pipeline, although, we don't have perfect records going back, it has to be -- its certainly bigger than last year and most likely the biggest implementation backlog the company has ever had.

And if you think about the deals that we've talked about, last quarter we talked about PNC and how that would compared to signing up number seven or so sites servicer, so that could deal a size and then you can look at based on external market data how deferred compared to PNC.

And Bank of America, I think, you all have done various different versions of trying to size that deal and we certainly can't provide you any information than what's publicly available. But suffice to say Glenn, they are big numbers, they are incremental to where we are today, but they will feather in overtime as we talked about earlier with implementations and so. It will be embedded each time as we update guidance for the following year. It will be embedded in that and we'll have to work through it that way with you.

Glenn Greene

Okay. The one that wasn’t great in the quarter was the Data and Analytics growth, the 1%, and I you had a tough comp in 1Q, it wasn’t a particularly hard comp this quarter and you do have a tougher comp again in 3Q it looks like, but any color on that and I think someone asked about the back half growth ex the acquisition, but what sort of drove the soft performance in the quarter?

Kirk Larsen

Yeah, something I didn’t mention on last quarter's call that I arguably should have and I'll walk you through it is our Property Insight business which is a provider of services due to FNF, our majority owner. There's a piece of business that Property Insight was doing in the State of Florida that frankly was at zero margin. And so, FNF is now doing that work themselves. And so that was $1.5 million of revenue in each of the first couple of quarters.

If you were to take that business out and just say it wasn’t in last year, you'd be talking more like a 5% growth for the quarter which I think is show some underlying growth in the businesses of relatively flat revenue from the long-term strategic license deals we signed, ones that we also signed them last year.

But it's more of a mid-single-digit grow as oppose to the 1% that show on a reported basis. That would overtime -- we expect that over time as we start seeing the revenue from the data hub deal that we just signed and future deals that that will be the driver of growth that would be about that.

Glenn Greene

Got it, makes sense. And then just to clarify the acquired revenue eLynx and Motivity, I think when you had the brief conference call on the eLynx deal you started talking about $24 million or $25 million revenue and then sort of parsing numbers, but it looks like north of $30 million based on what you said for the half quarter. And also directionally how large is Motivity.

Kirk Larsen

Motivity is quite a bit smaller than eLynx. And your algorithm is in the ballpark on eLynx. They did $24 million last year and last year I think we talked about it on the call; they were really good 30% or so. It’s a business we expect to grow, maybe not at 30% a year, but we expect it to grow and so certainly it will be well north of that $24 million this year.

Glenn Greene

Okay, great. Perfect. Thank you.

Operator

Thank you. That's all the time that we have. I will turn the call back over to Bill Foley for closing comment.

Bill Foley

Thank you. We appreciate everyone listening in and hope that you shared the same excitement about Black Knight's progress as we do. Thanks again for joining us and have a great day. Thank you.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.